Credit Risk Management Practice Exam

Which characteristic defines the structure of revolving securitization?

1. Fixed repayment schedules

2. Continuous issuance and redemption of securities

3. Limited to a single type of asset

4. Static asset pools with no new additions

The correct answer is: Continuous issuance and redemption of securities

Revolving securitization is characterized by the continuous issuance and redemption of securities. In this structure, a pool of assets is created that can be replenished over time, allowing for more flexibility in managing the underlying collateral. As debts are paid down, new loans or receivables can be added to the asset pool, maintaining a revolving nature. This allows for ongoing funding while supporting the periodic issuance of securities backed by the asset pool. In contrast, fixed repayment schedules would imply a more rigid structure akin to amortizing loans, rather than the dynamic replenishment seen in revolving securitization. Limiting to a single type of asset does not capture the essence of revolving securitization, which often includes a diversified pool of assets. Lastly, static asset pools with no new additions would contradict the fundamental principle of revolving securitization, where the assets can change and evolve over time. The ability for assets to be added and removed is central to defining this structure.