[2008]Topic 50: Synthetic Structure 相关习题 following, including, private, parties, market

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AIM 1: Describe a credit-linked note, including its risks and benefits.

1、Regarding the market for credit-linked notes (CLNs), which of the following is TRUE? The notes are often traded:

A) on organized exchanges but are illiquid.

B) among private parties and are liquid.

C) among private parties and are illiquid. 

D) on organized exchanges and are liquid.

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The correct answer is C

Credit-linked notes (CLNs) are often traded among private parties and are illiquid. Investors may find it difficult to redeem them prior to maturity.

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2、The maximum benefits to the buyer of a credit-linked note (CLN) accrue when:

A) there is a small credit downgrade.

B) there is no credit downgrade.

C) there is a large credit downgrade.

D) there is a default.

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The correct answer is B

The benefit to the CLN buyer is that the buyer earns a high return if there is no downgrade or default. The buyer’s primary risk is that there is a downgrade or default and the buyer earns a lower return.

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3、Which of the following is least likely a relevant risk for the buyer of a credit-linked note (CLN)?

A) Yield curve risk.

B) Credit risk of the bond.

C) Counterparty risk of the CLN issuer.

D) Correlation risk.

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The correct answer is A

The CLN buyer has the credit risk of the issue because if there is a downgrade, he would earn a lower return. He also has counterparty risk because the CLN issuer could possibly default on her obligation. There is also correlation risk if the default risks of the CLN issuer and bond issuer are highly correlated. Furthermore, CLNs are often privately traded and illiquid, so CLN investors may have a difficult time redeeming them prior to maturity. The CLN buyer has relatively little exposure to yield curve risk.

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4、An asset-backed, credit-linked note (CLN):

A) is a pool of unguaranteed auto loans.

B) combines asset-backed securities with the performance of an equity index.

C) is a debt obligation with a coupon that varies with credit risk and a redemption value linked to the performance of a portfolio of loans.

D) has no coupon, and redemption value is based on the repayment of the underlying loans.

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The correct answer is C

A CLN is a debt obligation bearing a coupon rate based on credit risk. The redemption value of the obligation is linked to the performance of a portfolio of loans. In exchange for the coupon, the holder participates in the credit risk of the loan portfolio.

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5、A fixed-income investor would purchase credit-linked notes in order to:

A) lower the credit risk of a position.

B) obtain a higher correlation.

C) obtain a higher coupon.

D) lower the principal risk of the portfolio.

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The correct answer is C

Credit-linked notes have an imbedded credit option. Investors of credit-linked notes assume a greater amount of credit risk in exchange for a higher coupon.