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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Transcribed Image Text: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.
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