Question

A security created by pooling loans other than mortgage loans is referred to as an ________________.

Example: Suppose that Exception Dental Equipment, Inc. (EDE) has a bulk of its sales from installment contracts (wherein the buyer agrees to repay EDE over a specified period of time for the amount borrowed plus interest).
The dental equipment purchased is the collateral for the loan. The credit department of EDE makes the decision as to whether or not to extend credit to a customer. EDE is the originator of the loan.

Answer 1

Answer: The correct answer is "asset-backed security".

Explanation: A security created by pooling loans other than mortgage loans is referred to as an asset-backed security.

Asset-backed securities are debt instruments insured against specific assets or against specific cash flows.