Question

An excess spread account incorporated into a securitized structure is designed to limit what?

1) The amount of excess cash flow available to investors
2) The risk of default on the underlying assets
3) The duration of the securitized structure
4) The credit rating of the securitized structure

Answer 1

The excess spread account incorporated into a securitized structure is designed to limit the credit rating of the securitized structure.

Step-by-step explanation:

The excess spread account incorporated into a securitized structure is designed to limit the credit rating of the securitized structure.

Excess spread refers to the difference between the interest paid by the underlying assets (such as mortgage payments) and the interest paid to the investors of the securitized structure. By limiting the excess spread, the credit rating of the securitized structure can be protected. When the excess spread is high, it indicates a higher level of credit risk, which may lower the credit rating of the securitized structure.