a structured entity buys dollar denominated assets issues euro denominated notes and 611678

Identifying relevant activities in a structured entity

A structured entity buys dollar-denominated assets, issues euro-denominated notes, and hedges the cash flow differences through currency and interest rate swaps. The activities that affect the structured entity”s returns include:

sourcing the assets from the market;

determining the types of assets that are purchased;

deciding how the structure is hedged; and

managing the assets in the event of default.

If each of these activities is managed by different investors (e.g. one investor manages the assets in the event of default, but a different investor determines the types of assets that are purchased), it is necessary to determine which activity most significantly affects the structured entity”s returns.