Question

Talk about the following BRIEFLY

1. Mortgage back securities
2. prime rate
3. libor rate

Answer 1

A. Mortgage backed securities are the debt securities that are collateralised by mortgage or collection of Mortgage. These are asset backed securities which are traded on the secondary market and they are providing and options to the investor to buy or sell those securities without being exposed to the real assets.

When an investor is buying the mortgage backed securities, he is generally giving the money to the home buyers because these assets are generally secured by the home loans.

B. Prime rate is the rate at which the corporate bank will be charging from most trustworthy customers and these are generally in line with the fed interest rate because they are to be charged from high worth individuals who are the regular customers of the bank and they have a high financial worthiness.

The federal fund overnight rate will serve as a basis for this prime rate.

C.London interbank offered rate is the rate which is charged by commercial bank from each other while lending to themselves so these are the rates which are charged by the commercial banks in London when they are lending the money to themselves.