Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What does CMO stand for in financial terms?

1. Collateralized Mortgage Obligations

2. Certified Money Operations

3. Corporate Mortgage Office

4. Conventional Mortgage Offering

The correct answer is: Collateralized Mortgage Obligations

The term CMO, when used in financial contexts, stands for Collateralized Mortgage Obligations. CMOs are a type of mortgage-backed security that pools together various mortgage loans and then slices them into different tranches, which can be sold to investors with varying risk and return profiles. Investors receive payments based on the cash flows generated by the underlying pool of mortgages, which provides them with a predictable income stream. This structure allows for tailored investment options, as different tranches can have varying levels of credit risk and return. The creation of collateralized mortgage obligations is significant in how they help manage and distribute risk in the mortgage market, making them an important financial instrument in the world of securities and investments. Other options like Certified Money Operations, Corporate Mortgage Office, and Conventional Mortgage Offering do not represent established financial terms associated with mortgage-backed securities. They lack the specific relevance and function that CMOs serve in financial markets.