CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

In a credit default swap:

I. The protection buyer assumes the credit risk.
II. One party, the buyer or the seller, owns the reference entity.
III. In the case of a credit event, and physical delivery is required, the protection buyer delivers the reference obligation.
IV. A CDS becomes more valuable to the buyer if the credit quality of the reference entity gets worse.
A. I and III
B. II and IV
C. III and IV
Explanation: I: The protection seller assumes the credit risk.
II: The reference entity belongs to a third party. Neither the buyer nor the seller needs to hold the asset.
III. The seller pays the buyer of the CDS the notional amount.

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