MORTGAGE BACKED SECURITIES (MBS) AND CREDIT DEFAULT SWAPS (CDS)

Subject: Business-to-Business Marketing

Paper Model: APA

Paper Type: Annotated Bibliography

Total Words: 1984

Document Outline

Mortgage Backed Security:
Research
es and Explanation:
Credit Default Swap:
Researches and Explanation
Comparative Discussion:
Conclusion:
References 


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mortgage backed securities (mbs) and credit default swaps (cds)

Mortgage Backed Security:

Mortgage is a word that is termed in the loan system usually from the banks or other official economical institutes. Mortgage loan can be explained as a type of loan that is allowed in the exchange of any appropriate asset. In other words, we can say that a mortgage loan system is a system of getting loan basically in the security of any mortgage or asset. An asset is only a source of security that if the lender of loan is not able to pay back the money of loan, so in that case the mortgage asset becomes a source of amount for their payable loan. That is why; the economical sectors like bank or any other sector that gives the loan allowance to any lender, do not need any other guarantee of person if the lender is having a sufficient asset as a mortgage security in return of loan.

Mortgage backed security (MBS) is a kind of backed system of security as asset. Mortgage backed system is secured by an asset or a group of asset or mortgage. Mortgage backed system is a secured system that is utilized by different economic or investment sectors i.e. banks or other investment sectors.

Topics selected for this paper:

  • Mortgage backed security
  • Credit default swap

Mortgage backed security (MBS) is a kind of backed system of security as asset. Mortgage backed system is secured by an asset or a group of asset or mortgage. The word swap comes from the terms of macroeconomic factors. Swap is actually termed as a type of legal contract between the contract bodies. As a whole, Credit default swap is a kind of contract that is business contract in nature.

Researches and Explanation:

 The mortgage backed system of United States explained three norms for the mortgage backed system which includes firstly the interest on the regarding amount that has been decided on the basis of current interest rate of the market. Secondly, the principal for the mortgage backed system is also having a key importance in the mortgage backed system. Thirdly, the concern becomes the payment of the amount on the mortgage backed security. (Giddy, 2015)

There lies a high correlation between the pricing of values and mortgage backed securities. As the prices increases it becomes an obvious incentive because the increment in the prices made it beneficial in the market as well as in the financial investment sectors.  The increment in the prices of houses also becomes an incentive in terms of prepayment. Moreover, if the interest completion is not long term so resultantly the lesser interest amount would also become an incentive for the mortgage backed security system.  In addition, the flow of cash pattern also varies as the prepayment pattern varies in the mortgage backed securities. (KARIYA, USHIYAMA, & PLISKA, 2002)

However, the mortgage backed securities depends on the pools for the mortgages. In addition, the mortgage backed securities are selected after a complete satisfaction of all conditions and rules. For the mortgage backed security, one must follow the Fannie Mae, Ginnie Mae and also the Freddie Mae.  These three terms are basically guarantees.  Ginnie Mae is a guarantee for the principal of payment and amount of interest for the pass through security. Whereas,  Fannie Mae is a guarantee of payment and interest for the mortgages and finally, the Freddie Mae is a guarantee for the payment and interest but in the Gold system.  Mortgage backed security system also revolved around the acceleration of the interest rate in the market. The acceleration of the interest maybe beneficial or maybe a disadvantage for  both the borrowers or the investment sectors.  (association, 2015)

The path of mortgage cash pattern flows with the interest rate in the market. Whenever there is a decline in the interest rate of the market the process of prepayment or refinancing becomes beneficial. The time of the declining of interest is having a strong relation with the terms of mortgage backed security system (MBS). (Acheampong, 2003)

Credit Default Swap:

The word swap comes from the terms of macroeconomic factors. Swap is actually termed as a type of legal contract between the contract bodies. As a whole, Credit default swap is a kind of contract that is business contract in nature. The credit default swaps based on the fixed credit system of business parties or of any other party with whom the interview would be considered. There is not any completion about the number of contract parties in the contract. The key objective of credit default swap system is to transfer the credit that has been fixed during the contract. Te transfer of credit takes place between or among the contract parties that maybe business parties or not.

Researches and Explanation:

The credit default swap carries a great type of responsibility as well as a great type of risk with it.  It is a case of sensitivity and credit default swap holds a number of terms and conditions with it. Credit swap system is also having a type of risk with it especially in long term contract. So that credit default swap is having the insurance system to insure the credit default swap. Credit default system is being used by many entities but it carries a lot of risk with it. It mostly used on the internal level like in banks or in some investment sectors for loan, bonds, business etc. (Amini, Cont, & Minca, 2013)

Credit default swap spreads was being analyzed and in result there was a high correlation. The correlation that was being tested was positive in nature. The basic purpose of analysis was to select the best suited model for the credit default swap spreads. The results were stationary with having hetero scedasticity in it. (Cont & Kan, 2011)

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