FRM II-MR EDU practice q1

anbu.edu
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FRM II-MR EDU practice q1

Postby anbu.edu » Sun Aug 10, 2014 6:22 am

Mortgage Based Securities were a hit because;
Select one:
a. Conventional financial instruments became risky investments
b. They always offered higher rate of interest than conventional financial instruments
c. They offered calculated risk which was rated by some of the biggest credit rating agencies
d. They offered some form of investment for everyone depending on risk appetite of the individual

The answer given is C- Can you please explain and why cant the answer be B

edupristine
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Joined: Wed Apr 09, 2014 6:28 am

FRM II-MR EDU practice q1

Postby edupristine » Thu Sep 25, 2014 6:39 am

The answer cannot be B because though MBS initially offered higher rates of return but the lower credit quality served as a deterrence for an investor.
Answer option (c) seems to be a correct answer as MBS offered calculated risk, rated by some of the biggest credit rating agencies. This assurance that MBS is rated by the reputed credit rating agencies was one of the major factors in popularity of MBS.


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