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14 Nov 2018

Explain the features of convertible securities

Explain in some detail how credit default swaps work.

Explain the securities lending process works.

Discuss the importance of cash collateral and collateral pools.

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Keith Leannon
Keith LeannonLv2
15 Nov 2018
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Related questions

A)How does an exchangeable bond differ from a convertible bond?

B)Discuss in some detail convertible bond arbitrage.

C)Explain a security’s lending agreement include in your answer borrow fee, rebate, cash collateral

D)Explain the steps of the investment management process

Question 12: Essay Question

a. Use intuitive words to explain what are credit default obligations (CDOs) and credit default swaps (CDSs).

b. Describe the financial crisis in 2008. When describing, you need to explain subprime mortgages and mortgage backed securities (MBS) and why they could thrive for more than a decade. Depict the roles of home buyers, mortgage bankers, MBS investors, investment banks, insurance companies, credit rating agencies, etc.

c. Finally, explain why derivatives such as CDOs and CDSs had such a destructive power that results in a total financial market meltdown, not only in United States, but worldwide.

Read the “Global Economic Crisis” story on p. 212. Discuss the credit default swaps and the effects it had on the financial crisis. 75 to 150 words. The Global Economic Crisis Insuring with Credit Default Swaps: Let the Buyer Beware! A credit default swap (CDS) is like an insurance policy. The purchaser of the CDS agrees to make annual payments to a counterparty that agrees to pay if a particular bond defaults. During the 2000s, investment banks often would purchase CDS for the mortgage-backed securities (MBS) they were creating in order to make the securities more attractive to investors. But how good was this type of insurance? As it turned out, not very. For example, Lehman Brothers might have bought a CDS from AIG in order to sell a Lehman-created MBS to an investor. But when the MBS began defaulting, neither Lehman nor AIG was capable of making full restitution to the investor.

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