CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Which condition will make a CDS more expensive?
A. The defaults get more and more correlated in an index CDS.
B. The credit quality of the reference obligation gets higher.
C. The credit quality of the protection seller gets lower.
Explanation: The value of an index CDS depends on credit correlation of the underlying companies, i.e., the higher the correlation between defaults of companies, the more expensive it is to purchase protection for a combination of companies.

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