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Answer: TBAs are forward contracts where buyers and sellers agree on issuer, maturity, coupon, price, par value, and settlement month.
**Correct Answer: C** **Explanation:** TBA (To-Be-Announced) trading is a forward contract market for mortgage-backed securities where: - **Option C is correct**: TBAs are forward contracts where parties agree on key specifications including issuer, maturity, coupon, price, par value, and settlement month, but the specific pools are not identified at the time of trade. - **Option A is incorrect**: TBAs do NOT involve agreements on specific pools of mortgages. The specific pools are announced later (typically 48 hours before settlement). - **Option B is incorrect**: While sellers do have some flexibility in choosing which pools to deliver, they must meet certain quality standards and the pools must match the agreed-upon specifications. - **Option D is incorrect**: TBAs are actually MORE actively traded than specified pools due to their standardized nature and liquidity advantages.
Author: LeetQuiz Editorial Team
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Which of the following accurately describes a characteristic of to-be-announced (TBA) trading in mortgage-backed securities (MBS)?
A
TBAs involve agreements on specific pools of mortgages at predetermined prices.
B
TBAs allow sellers to choose the exact mortgage pools to deliver at settlement.
C
TBAs are forward contracts where buyers and sellers agree on issuer, maturity, coupon, price, par value, and settlement month.
D
TBAs are less actively traded compared to specified pools due to their complex settlement process.
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