LOS c: Explain the use of credit derivatives by the various market participants.

Q1. Which of the following entities is the fastest growing segment of the credit derivatives market?

A)   Commercial banks.

B)   Hedge funds.

C)   Investment Banks.

Q2. Which of the following is least likely a stated use of credit derivatives by commercial banks and corporations?

A)   Income.

B)   To satisfy regulatory standards.

C)   Speculation.

Q3. Which of the following entities is the largest market participant in the credit derivatives market?

A)   Hedge funds.

B)   Investment Banks.

C)   Commercial banks.

LOS c: Explain the use of credit derivatives by the various market participants. fficeffice" />

Q1. Which of the following entities is the fastest growing segment of the credit derivatives market?

A)   Commercial banks.

B)   Hedge funds.

C)   Investment Banks.

Correct answer is B)

There are hedge funds that specialize in the trading of credit derivatives. In their pursuit of relative value opportunities, they have become quite active and are important providers of liquidity to the market. Hedge funds represent the fastest growing segment of the credit derivatives market.

Q2. Which of the following is least likely a stated use of credit derivatives by commercial banks and corporations?

A)   Income.

B)   To satisfy regulatory standards.

C)   Speculation.

Correct answer is C)

Commercial banks use credit derivatives to hedge their exposures and to satisfy regulators. Corporations use credit derivatives for hedging and income enhancement.

Q3. Which of the following entities is the largest market participant in the credit derivatives market?

A)   Hedge funds.

B)   Investment Banks.

C)   Commercial banks.

Correct answer is C)

Commercial banks use credit derivatives to hedge their exposures and to satisfy regulators. They are the largest participant in the market, with a share of 35-40%.

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