Question 1

In the Securitisation process, the "Special Purpose Vehicle" (SPV) is set up to:

Originate the loans.Buy the pool of assets from the Originator and issue Security Receipts to investors.Audit the bank.Collect monthly EMIs from borrowers.

View Explanation

The SPV (usually a Trust) isolates the assets from the bankruptcy risk of the Originator. It buys the loans and issues securities backed by the cash flows from these loans to investors.

Question 2

A "Pass Through Certificate" (PTC) implies that:

The SPV guarantees the payment.The originator retains the risk.The cash flows from the underlying assets are passed through to the investors, minus service charges.The investor cannot sell the certificate.

View Explanation

In a PTC structure, the SPV acts as a conduit. As borrowers repay loans, the SPV passes these cash flows directly to the investors who hold the PTCs.

Question 3

In securitisation, "Credit Enhancement" is provided to:

Improve the credit rating of the securities issued by the SPV to attract investors.Increase the interest rate.Hide bad loans.Reduce the loan amount.

View Explanation

Credit enhancement (like cash collateral or over-collateralization) absorbs initial losses, making the senior tranches of securities safer and higher-rated.

Question 4

In a Securitisation transaction, a "Clean-up Call" option allows the Originator to:

Call back the loan from the borrower immediately.Clean the balance sheet of all debts.Call the investors for a meeting.Repurchase the remaining securitised assets from the SPV when the outstanding pool balance falls below a certain level (e.g., 10%).

View Explanation

A Clean-up Call is an option permitting the originator to purchase the remaining assets in a securitisation scheme when the outstanding securities usually fall to 10% or less of the original issuance. This is done because the cost of servicing small remaining balances outweighs the benefits.

Question 5

In securitisation, a "Clean-up Call" allows the originator to buy back the assets when the outstanding pool principal falls to:

20% or less10% or less5% or less15% or less

View Explanation

RBI guidelines allow a Clean-up Call option to the originator to purchase remaining assets when the outstanding securities are not more than 10% of the original amount, facilitating the winding up of the SPV.

JAIIB Quiz

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