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LOS a: Describe the characteristics of a credit default swap, and compare and contrast a credit default swap to a corporate bond.
Q1. Which of the following most accurately describes the appropriate position in credit default swaps and bonds? If an investor believes that credit risk is overstated by the market, the investor should:
A) sell a bond or sell a credit default swap.
B) sell a bond or buy a credit default swap.
C) buy a bond or sell a credit default swap.
Q2. A firm will potentially undergo a major financial restructuring where some of its debt may get downgraded. Which of the following positions would provide a bond investor protection against this event?
A) The fixed side of a plain vanilla interest rate swap.
B) The sale of a credit default swap.
C) The purchase of a credit default swap.
Q3. Which of the following most accurately describes the behavior of credit default swaps?
A) When credit and interest rate risk increases, swap premiums increase.
B) When credit risk increases, swap premiums increase.
C) When credit risk increases, swap premiums increase, but when interest rate risk increases, swap premiums decrease. | 
发表于 2009-4-2 10:25
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