Products & Their RisksQuestion 154 of 398
A client wants a government-backed security whose cash flow comes from homeowners' monthly mortgage payments and carries the full faith and credit of the U.S. government. The best fit is:
a.A Treasury bill
b.A corporate debenture
c.A Ginnie Mae (GNMA) pass-through security
d.A municipal revenue bond
Explanation
Ginnie Mae pass-throughs pass monthly principal and interest from a pool of home mortgages through to investors and are backed by the full faith and credit of the U.S. government. T-bills are government-backed but not tied to mortgages, and Fannie/Freddie securities are mortgage-based but lack the direct full-faith-and-credit guarantee. GNMA uniquely satisfies both conditions.
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