U3 Topic 1 Flashcards
Q1
The process of packaging a number of mortgages into ‘bundles’ and selling them to other institutions is known as:
-consolidation
-securtisation
-leveraging
Securitisation
Mortgage providers, package mortgage loans they hold into bundles and sell them to other institutions all over the world. This process, known as securisation, remove the loans from the lenders balance sheets, and the proceeds of the sale gives them more capital to invest. The institutions that buy the mortgage bundles receive the stream of income from mortgage interest payments, together with capital repayments.
Q5
Which of the following is true in relation to interest rates?
-A significant increase in government borrowing would place downward pressure on the interest rates
-Increase demand for borrowing tends to lead to decrease in interest rates
-When UK interest rates are higher than those abroad, the value of sterling decreases
When UK interest rates are higher than those abroad, the value of sterling increases
The value of sterling against foreign currencies is affected by interest rates. When UK interest rates are higher than those abroad, the pound is popular and the exchange rate increases. This can have a negative effect on industry because UK goods become expensive abroad and sales may be affected
Q10
Sale and rent back arrangements involve a company buying a property from its owner:
-Usually at market value, then renting it back to them
-Below market value, then renting it back to them
-Above market value, then renting it back to a separate person
Usually below market value, then renting it back to them
With sale and rent back, although the former owner loses ownership, they are able to stay in their home.
Q18
What is meant by ‘securitised lending’?
-selling one mortgage loan to another business
-bundling together a number of mortgage loans and selling them so we will have a business
-Retaining all mortgage loans but increasing the security required from borrowers
Bundling together a number of mortgage loans and selling them to another business.
Security blending involves bundling together a number of mortgage loans and selling them to another business. The seller receives a capital sum that they can use to offer further mortgage loans. The buyer receives the regular income stream from borrowers repayments on the bundled mortgage.
