aianjie

 

9、Which of the following would most likely be settled with one party requiring the other to purchase the underlying asset?

A) A total return swap.

B) Senior basket default swap.

C) Subordinate basket default swap. 

D) A credit default swap. 

aianjie

 

The correct answer is D

In a credit default swap, one party makes payments to the other until the default (if it occurs), the terms of the swap may require the receiver of the payments prior to the default to purchase the underlying asset. All of the other choices usually only involve a cash settlement.

aianjie

 

10、Which of the following is/are a credit event?

 I. Failure to make a required payment.

 II. Restructuring that makes the creditor worse off.

 III. Bankruptcy.

 IV. Invocation of a cross-default clause.

A) II and III.

B) I, II, and III.

C) I, II, III, and IV.

D) I, II, and IV.

aianjie

 

The correct answer is C

All statements are true. Credit events include:

  ? Failure to make required payments.

    ? Restructuring that harms the creditor.

    ? Invocation of cross-default clause.

    ? Bankruptcy.

aianjie

 

11、A seller must make a payment to the credit protection buyer based on a trigger event. According to the International Swaps and Derivatives Association (ISDA), all of the following are trigger events EXCEPT a:

A) restructuring.

B) obligation acceleration.

C) repudiation/moratorium. 

D) stock split.

aianjie

 

The correct answer is D

ISDA identified six trigger events which trigger a payment from a credit protection seller to a credit protection buyer:

Bankruptcy

Failure to pay

Restructuring

Obligation acceleration

Obligation default

Repudiation/moratorium

aianjie

 

12、The most that the buyer of a credit default swap can expect to receive in the event of a default is:

A) interest and principal payments as originally scheduled.

B) the par value of the instrument.

C) a premium price for the instrument.

D) 85% of the originally scheduled payments.

aianjie

 

The correct answer is B

In the event of default, the most that the buyer of a credit default swap can receive is the par value of the instrument.

aianjie

 

13、For a Nth-to-default swap, the credit protection it offers would most likely equal a:

A) senior basket default swap if N = 1.

B) subordinate basket default swap if N = 1. 

C) subordinate basket default swap if N = 0.

D) senior basket default swap if N = 0.

aianjie

 

The correct answer is B

Of all the possible answers, this is the best one because a subordinate basket default swap makes a payment on the first default as will a Nth-to-default swap if N=1. A senior basket default swap does not make a payment until some threshold is reached, which is usually set so more than one reference entity must default before there is a payout. There is no such thing as a Nth-to-default swap where N=0.