Assume you are lending money to company X. A credit default swap (CDS) consists of an agreement by a third party to pay the lost principal and interest of a loan to you (the CDS buyer) if a borrower defaults on a loan. Which of the following is false? O A. A Swap completely solves the problem that company X might default OB. A Swap solves the default problem from Company X on the condition that the third party (CDS provider) will not default. OC. When financial crisis happens, the CDS seller may have to pay recovery to many CDS buyers, and then the CDS seller could default. O D. B and C are part of the reasons for 2008 Global financial crisis.
Assume you are lending money to company X. A credit default swap (CDS) consists of an agreement by a third party to pay the lost principal and interest of a loan to you (the CDS buyer) if a borrower defaults on a loan. Which of the following is false? O A. A Swap completely solves the problem that company X might default OB. A Swap solves the default problem from Company X on the condition that the third party (CDS provider) will not default. OC. When financial crisis happens, the CDS seller may have to pay recovery to many CDS buyers, and then the CDS seller could default. O D. B and C are part of the reasons for 2008 Global financial crisis.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume you are lending money to company X. A credit default swap (CDS) consists of an agreement by a third party to pay the lost principal and interest of a loan to you (the CDS buyer) if a borrower defaults on a loan. Which of the
following is false?
O A. A Swap completely solves the problem that company X might default
OB. A Swap solves the default problem from Company X on the condition that the third party (CDS provider) will not default.
O C. When financial crisis happens, the CDS seller may have to pay recovery to many CDS buyers, and then the CDS seller could default.
O D. B and C are part of the reasons for 2008 Global financial crisis.
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