Exam 29: Credit Derivative Products

Credit risk in bonds involves uncertainty about whether the bond will default (default risk), and uncertainty about the value of the bonds when they default (recovery risk). In order to profit from a view that recovery risk will worsen, you would

Bank A has a funding cost of $L + 10$ basis points, where $L$ is Libor. Bank B has funding cost of $L + 80$ basis points. There is a reference obligation currently yielding $L + 140$ basis points. In a "Funding Cost Arbitrage," Bank A pays B the total return on the reference obligation in exchange for a payment of $L + x$ basis points by Bank B, where:

Which of the following is not a property or benefit of credit derivatives?

The asset swap spread is

If you are interested in speculating on a deterioration in the credit quality of a company, which of the following would be appropriate?

Total return swaps (TRSs) are sometimes undertaken between banks who can access an asset on-balance-sheet and funds that lack access to, or are not allowed to, hold the asset. In such a situation,

Which of the following statements is valid?

A settlement squeeze in the credit default swap market is least likely to occur when the CDS contracts are

A digital default swap is a contract that is distinct from a credit default swap in that

CDS settlement is not likely to be triggered by which of the following events?