How does a CDO differ from an ABS transaction?

What will be an ideal response?


When the asset-backed security (ABS) market began, there was a debt product that employed the securitization to pool a diversified pool of some asset type and issue securities backed by the cash flow of the asset pool. These debt products are called collateralized debt obligations (CDOs). CDOs are a type of structured ABS with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. CDOs differ from ABS in that the pool of assets is actively managed by an entity referred to as the collateral manager. Asset-backed securities are credit enhanced to provide greater protection to bond classes against defaults. There are two general types of credit enhancement structures: internal and external.

One might note that although issuance of CDOs grew dramatically from the mid-1990s through early 2007, issuance for all but CLOs has stopped because of the dismal performance of this product. Market observers do not believe that the market for CDOs (other than CLOs) will be revived.

Business

You might also like to view...

RVP Inc. realizes a net profit of $230 million and the owner's equity amounts to $750 million. Calculate the return on equity for the company

A) 16.5% B) 30.7% C) 7.5% D) 75% E) 23.2%

Business

According to the text, political drivers of globalization include

A. nationalization of much of the industry in formerly communist nations. B. import barriers. C. limitations on foreign direct investment. D. expanded barriers to trade and foreign investment. E. preferential trading agreements.

Business

If you had a small business and needed a sales force but did not wish to hire anyone, you could use the services of an independent agent.

Answer the following statement true (T) or false (F)

Business

The real rate of interest is composed of a risk-free rate of interest plus the default premium and liquidity premium that reflects the riskiness of the security?

Answer the following statement true (T) or false (F)

Business