Question

Talk about the following BRIEFLY

a) Mortgage back securities

b) prime rate

c) libor rate

Answer 1

Answer:-

(a) MORTGAGE BACK SECURITIES:-

•Mortgage back securities (MBS) is also known as mortgage related security or pass through.

• It is similar to a bond investment that is a bundle of home loans taken from banks that issued them.It is like an asset back security.

• MBS is a mediator between the homebuyer and the industry making investment. MBS is as a safe for investors as the mortgage loans that back it up.

• There are two types of mortgage back securities namely as pass-throughs and collateralized mortgage obligations.

(b) PRIME RATE:-

• It is the interest rate that is charged by commercial banks to their creditworthy customers.

• Prime rate is the basis or starting point for the other interest rates like business loans , personal loans , mortgages etc.

• It is determined by the Federal funds rate and most used prime rate is published by Wall Street Journal on regular basis.

c) LIBOR:-

• LIBOR - London Inter Bank Offerer Rate

• This interest rate is a benchmark rate at which banks lends short term loans globally in the the international interbank market.

• LIBOR is calculated on the basis of five currencies and seven different maturities. The combination of 5 currencies and 7 maturities is reported to each business daily.

• It is published by the Intercontinental Exchange (ICE).

• The quoted rate that is most common is the 3 months U S dollar rate , and it is usually referred to as the current LIBOR rate.

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