Reading 65: Using Credit Derivatives to Enhance Return and Ma following, regarding, regulated, government, advantages

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LOS b: Explain the advantages of using credit derivatives over other credit instruments.

Q1. Which of the following is least accurate regarding credit default swaps?

A)   The credit default swap market is highly regulated by government authorities.

B)   Liquidity is usually greater in the credit default swap market than in the underlying cash market.

C)   Short positions are more easily obtained using credit default swaps than shorting a bond.

 

Q2. An investor would like to discreetly take a long position in a firm’s debt. Which of the following would be the most appropriate strategy?

A)   The sale of a credit default swap.

B)   The purchase of a bond.

C)   The purchase of a credit default swap.

 

Q3. An investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this?

A)   The sale of a credit default swap.

B)   The purchase of a credit default swap.

C)   The short sale of the bond.

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