CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

If you expect the CDS curve to become steeper, you can use the strategy of curve trade to take advantage of this. The strategy involves:
A. short a long-term CDS and long a short-term CDS of the same reference entity.
B. long a long-term CDS and short a short-term CDS of the same reference entity.
C. long the company's bond and long a long-term CDS to eliminate long-term credit risk.
Explanation: "short" a CDS means buying protection in the CDS. In this case you expect the long-term credit risk will increase so you should short it (buy protection).

User Contributed Comments 4

User Comment
philjoe lol no
kamcooler Sorry but as someone who trades CDS for a living, I can tell you that "short" a CDS means going short protection/ long underlying. It does not mean buying protection.
myron @kamcooler: according to wiki, quote: " the investor who bought protection is "short" on the CDS and the underlying credit."
wilsonesou if it is right, i cant tell, but the cfa curriculum says that
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