Multiple Choice
Which of the following is true about a target date fund (TDF)?
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7. Receivables and Investments
Introduction to Investments in Securities
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What is one of the primary purposes of the secondary mortgage market?
A
To provide liquidity to lenders by allowing them to sell existing mortgages to investors
B
To regulate interest rates on all mortgage loans
C
To originate new mortgage loans for homebuyers
D
To insure mortgages against default
Verified step by step guidance1
Understand the concept of the secondary mortgage market: It is a marketplace where existing mortgages are bought and sold by investors, providing liquidity to lenders.
Recognize the primary purpose of the secondary mortgage market: It allows lenders to free up capital by selling their existing mortgages, enabling them to issue new loans.
Eliminate incorrect options: The secondary mortgage market does not regulate interest rates, originate new loans, or insure mortgages against default. These functions are handled by other entities or processes.
Focus on the correct option: The secondary mortgage market's role is to provide liquidity to lenders, ensuring they have the funds to continue lending.
Conclude that the correct answer is: 'To provide liquidity to lenders by allowing them to sell existing mortgages to investors.'
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