an excess spread account incorporated into a securitization is designed to limit:
A) credit risk.
B) extension risk.
C) contraction risk.

Question

Quizplus · Accepted Answer

An excess spread account is used to limit credit risk in a securitization. This account receives the difference between the interest received on the underlying assets and the interest paid to investors in the securities issued by the securitization. By having this buffer, the excess spread account can absorb losses from defaults on the underlying assets without impacting the payments to investors. This reduces the credit risk for investors in the securitization.

An Excess Spread Account Incorporated into a Securitization Is Designed