adehbone

Binary Credit Options - use when you want to protect against a downgrade or default.
Credit Spreads - use when you want to protect against spread changes. Can use options or forwards.
The KEY is to ascertain what event you want to have trigger the payoff.
They are related only in that they help payoff in the event of a decline in bond value, but have different triggers.
Triggers:
Binary - default and downgrade; Credit Spread - specific strike rate.
To answer your question about what happens on the exam if you are given a choice to choose, just keep in mind what the investor wants to strategize against. A decline in value is too vague to make a decision from. You would likely be given additional details about the investor’s preferences.