What are financial service corporations created by Congress to provide liquidity on the secondary market known as?

What are financial service corporations created by Congress to provide liquidity on the secondary market known as?

• A. Government Sponsored Enterprises (GSE)
• B. Investment Trusts
• C. Commercial Banks
• D. Publicly Traded Corporations

Answer: (A)

Financial service corporations created by Congress to provide liquidity in the secondary market are known as Government Sponsored Enterprises (GSEs). GSEs play a crucial role in enhancing the availability of credit in the market, particularly in the housing sector. They do this by facilitating the flow of capital to mortgage lenders, thereby allowing more people to access home financing. This is achieved through the purchase and backing of mortgages, which helps stabilize the housing market and ensure that funds are readily available for home loans. GSEs, such as Fannie Mae and Freddie Mac, were established to operate with public purposes in mind while maintaining a degree of private sector investment and operation. Their involvement in the secondary mortgage market allows lenders to sell their loans, which provides them with increased liquidity to continue lending activities. While other entities like investment trusts, commercial banks, and publicly traded corporations have their specific roles in the financial system, they do not focus specifically on maintaining the liquidity of the secondary mortgage market in the same manner as GSEs. Thus, the reference to these financial service corporations distinctly aligns with the concept of Government Sponsored Enterprises.

Financial service corporations created by Congress to provide liquidity in the secondary market are known as Government Sponsored Enterprises (GSEs). GSEs play a crucial role in enhancing the availability of credit in the market, particularly in the housing sector. They do this by facilitating the flow of capital to mortgage lenders, thereby allowing more people to access home financing. This is achieved through the purchase and backing of mortgages, which helps stabilize the housing market and ensure that funds are readily available for home loans.

GSEs, such as Fannie Mae and Freddie Mac, were established to operate with public purposes in mind while maintaining a degree of private sector investment and operation. Their involvement in the secondary mortgage market allows lenders to sell their loans, which provides them with increased liquidity to continue lending activities.

While other entities like investment trusts, commercial banks, and publicly traded corporations have their specific roles in the financial system, they do not focus specifically on maintaining the liquidity of the secondary mortgage market in the same manner as GSEs. Thus, the reference to these financial service corporations distinctly aligns with the concept of Government Sponsored Enterprises.