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Bonds 106: The Role of Collateral

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1.
Government collateralized securities are secured by the taxing power of the government.
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False. Government collateralized securities are not secured by the taxing power of the government, but by the collateral itself.
2.
Which investment pledges a portfolio of securities as collateral?
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Repurchase agreement. Repurchase agreements use portfolios of securities as their collateral.
3.
The less risk an investment has, the more an investor expects to earn from it.
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False. The more risk an investment has, the more an investor expects to be able to earn from it.
4.
Securities without collateral have higher credit ratings than those with collateral.
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False. Securities without collateral are given lower credit ratings than those with collateral.
5.
Loan and debt issuers use collateral to attract investors.
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True. Collateral helps protect against losses from default.