aianjie

 

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.

aianjie

 

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.

aianjie

 

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.

aianjie

 

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.

aianjie

 

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.

aianjie

 

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.