Test bank NHTM - CHAP 9

Securitization is designed to turn illiquid loans into liquid assets in the form of securities sold in the open market.

• True

• False

Securitization has the added advantage of generating fee income for banks.

• True

• False

Securitized assets cannot be removed from a bank's balance sheet until they mature.

• True

• False

Securitization raises the level of competition for the best-quality loans among banks.

• True

• False

Servicing rights on loans sold consist of the collection of interest and principal payments from borrowers and monitoring borrower compliance with loan terms.

• True

• False

A loan sold by a bank to another investor with recourse means the bank has given the investor a call option on the loan.

• True

• False

An account party will seek a bank's standby credit guarantee if the bank's fee for issuing the guarantee is less than the value assigned the guarantee by its beneficiary.

• True

• False

The buyer of a loan participation must watch both the borrower and the seller bank closely.

• True

• False

In a participation loan the purchaser is an outsider to the loan contract between the financial institution selling the loan and the borrower.

• True

• False

Most loans that banks sell off their balance sheets carry interest rates that usually are connected to long-term interest rates (such as the 30-year Treasury bond rate).

• True

• False