CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Select the correct statetment(s):

I. A credit default swap is like an insurance contract.
II. If default occurs on the reference entity, the buyer of a CDS receives payment from the seller.
III. A CDS creates a short position in the reference entity for the swap buyer.
IV. A CDS becomes more valuable to the seller if the reference entity increases in credit quality.
A. II, III and IV.
B. I, III and IV.
C. I, II, III and IV.
Explanation: III: If the credit quality of the reference entity declines, the value of CDS increases.
IV: The CDS decreases in value below the price at which it was originally sold.

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