A mortgage-backed security is a type of asset-backed security using mortgages.
The mortgages of a mortgage-backed security can be for both residential and commercial properties.
When a financial institution packages mortgages together into a security this can be sold on to investors as a mortgage-backed security.
A collateralized debt obligation is a type of structured asset-backed security.
Collateralized debt obligation tranches are used to catch the cash flow of interest and principal payments in sequence based on seniority.
Senior tranche, Mezzanine tranche and Equity tranche are examples of collateralized debt obligation tranches.
Senior tranche from a collateralized debt obligation are paid first.
Equity tranche from a collateralized debt obligation are paid last.
Credit default swaps are considered as a type of insurance against the non-payment of loans.
Pension funds are not allowed to invest in high-risk securities.
Moody’s is an example of a credit rating agency. AIG is an example of an international insurance company.
Warren Buffett described derivatives as financial weapons of mass destruction.
LIBOR stands for London Inter-Bank Offer Rate
Interest rate swaps can be described simply as the exchange of one set of cash flows for another.
Interest rate swaps are sought by firms that desire a type of interest rate structure that another firm can provide less expensively.
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