An article on bloomberg.com quoted an analyst at a financial firm as stating. "When a company is in distress, CDS is one of the best ways to trade the risk."What does the analyst mean by "trade the risk"?A. To pass the risk of losing money due to a default to the seller of the CDS.B. To help a firm avoid defaulting on its obligations by providing them with additional funds from the sale of CDS.C. To help a firm avoid defaulting on its obligations by swapping the firm's risky assets for government securities.D. To pass the risk of losing money due to a default from the seller of a CDS to the buyer.Is the analyst's firm likely to be buying or selling credit default swaps on a distressed firm?OA. They are most likely selling so they can eam a payoff if the distressed company ends up defaulting on their bonds.B. They are most likely buying so they can earn a payoff if the distressed company ends up defaulting on their bonds.OC. They are most likely selling so they can provide additional funds to the company in order to help them avoid defaulting on their bonds.OD. They are most likely buying so they can provide additional funds to the company in order to help them avoid defaulting on their bonds.

Credit Default Swaps (CDS) are a derivative instrument where the seller of the CDS, pays a payoff to…

Is the analyst's firm likely to be buying or selling credit default swaps on a distressed firm? OA. They are most likely selling so they can eam a payoff if the distressed company ends up defaulting on their bonds. OB. They are most likely buying so they can earn a payoff if the distressed company ends up defaulting on their bonds. OC. They are most likely selling so they can provide additional funds to the company in order to help them avoid defaulting on their bonds. OD. They are most likely buying so they can provide additional funds to the company in order to help them avoid defaulting on their bonds.

Is the analyst's firm likely to be buying or selling credit default swaps on a distressed firm? OA. They are most likely selling so they can eam a payoff if the distressed company ends up defaulting on their bonds. OB. They are most likely buying so they can earn a payoff if the distressed company ends up defaulting on their bonds. OC. They are most likely selling so they can provide additional funds to the company in order to help them avoid defaulting on their bonds. OD. They are most likely buying so they can provide additional funds to the company in order to help them avoid defaulting on their bonds.

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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Similar questions

Which of the following statement is TRUE? Select one: O a. None of the other options is correct. O b. Losses on real estate loans are first compensated by the investors in commercial paper issued by the financial institution. O c. In a syndicated loan, a group of lenders shares the return, but not the default risk of the loan Od. When a bank gives a secured loan, the bank has first claim on specific assets of the borrower in the event of a default. Oe. When the repayment probability of a loan is equal to zero, the financial institution investing in this loan faces low credit risk.
The company's bank won't lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow the company to borrow. Explain how to secure the bonds with owned assets in great detial. In what ways does it make the bonds more attractive to allow the company to borrow?
Which of the following statement is (are) TRUE of collateralized loan obligation (CLO)? A: A CLO pools a group of loans and creates multiple tranches with different levels of risk B: The less risky tranches in a CLO have a lower pay-off (i.e. lower coupons) C: A tranch of a CLO can have a high credit rating even though the underlying loans in a CLO are risky D: All of the Above Please answer fast i give you upvote.
“Inside the company fixed income managers bought bonds but they did not keep them for very long at all. Instead, they were constantly buying, exchanging and selling the bonds in their portfolios” Explain why the behavior described in the above quote may happen in terms of interest-rate risk immunization and downgrade risk. Do not discuss speculation or arbitrage as causes of this behavior as these will not gain any credit in this examination.
Why do at least some investors like to invest in asset-backed securities? Check all that apply: ABS are less risky than bonds with the same rating. It lowers their capital requirements. It gives them control over more assets. ABS often pay higher interest rates than bonds with the same rating.
Why is it important that underwriting the investment banker does not overvalue (over price) or undervalued (under price) the securities? If the securities are overpriced or underpriced, who suffers the lost? Discuss with illustrations.
In the federal funds markets, financial institutions can borrow money from the Federal Reserve. True False Assuming the STRIPS are held to maturity, their investors know the precise payouts they'll receive. True False
When the default risk is high, ___. the debtor charges high interest the debtor earns more the creditor earns less the creditor charges high interest Please answer immediately thanks :)
Which of the following is FALSE regarding ARM loans? ○ Lenders only originate ARMs if the expected benefit from shifting interest rate risk is greater than the increased risk of borrower default caused by adjusting composite rates none of the answer choices is FALSE ARMs with shorter term index means increased risk to borrower because shorter term index rates have more volatility ARMs with more frequent adjustments to the composite rate are more risky to lenders than ARMs with less frequent adjustments
1 What is the Advantage and Disadvantage of Liquidity management under reserve shortfalls based on the below 4 points1? securities sale 2. reduce loans 3. emergency borrowing from CB 4. borrowings from other banks
Financial assets such as mortgages, credit cardreceivables, and auto loan receivables are oftenbundled up, placed in a bank trust department,and then used as collateral for publicly tradedbonds. Bond prices typically rise when interestrates decline, but bonds backed by mortgagesfrequently fall when rates decline. Why might thishappen?
Investment Banks operate and earn profits by: a) Purchasing undervalued securities on the market b) Creating and marketing new financial securities for issuers. c) Underwriting existing security issues, and selling them at a discount. d) Issuing stocks and bonds based on their own credit. e) Purchasing and reselling existing undervalued stocks and bonds. f) None of the other answers.

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