Credit card ABS

CFA Level I Fixed Income
#1

  1. Why does a credit card ABS reduce the cost of default risk from credit card debt?

  2. When floating rate cap exceeds the rate cardholders must pay, there is no related binding limit on finance payments. What does this mean and why?

Could someone please explain me these two?

Reference: 2024 curriculum, Volume 4, Learning Module 18, page 490, solutions to Qs. 5 and 6.

IMG_20231008_153902
IMG_20231008_1539021920×941 134 KB

#2
  1. Credit Card ABS is pooling the cash flows form a series of credit card debts,thus it can reduce the default risk as a whole.
  2. Is that mean floating rate cap go exceeds the rate cardholders must pay is allowed? I’m not sure.