Not all credit risk can be removed with a credit default swap becausecounterparty risk still existsinterest rate risk still existsswaps are not traded on an exchangeall of the above

Credit default swap are derivative contract that prevent credit risk by purchase of the option from…

Answered: Not all credit risk can be removed with…

Not all credit risk can be removed with a credit defau O counterparty risk still exists interest rate risk still exists swaps are not traded on an exchange O all of the above

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

How are derivatives valued on the balance sheet? How is the adjustment to fair value recorded differently for a cash flow hedge versus a fair value hedge? That is, how does the fair value adjustment of each type of hedge affect current period net income and the accounting equation? What are the three criteria that must be met for a derivative to be classified as a hedge? Once entities decide to buy or sell derivatives to hedge economic risks, they then need to decide whether they want to use hedge accounting; it is an election, not a requirement, even when the derivatives are for the economic purpose of hedging. This election is reminiscent of inventory accounting. Just like when a company selects an inventory method, a company is not required to select the accounting method (LIFO, FIFO, weighted average, specific unit) that most closely corresponds with the physical movement of inventory, although they are free to do so. If entities decide to elect hedge accounting, the following…
All of the following are credit derivatives except: Group of answer choices C. Spread options D. Credit-linked notes B. Credit default swaps (CDS) A. Remics
A swap: Group of answer choices B. Gives the holder the right to see the underlying bond. A. Allows the buyer to purchase the underlying instrument. C. Is an OTC agreement to exchange the cash flows of two different securities. D. Not effective at managing interest rate risks.
How is a credit default swap like insurance?
Merck is an example of a company who decided to mitigate the adverse impact of market fluctuations by entering into hedging agreements using: B. Interest rate swaps C. Both A & B A. Currency options D. Neither A or B
A credit default swap (CDS) is a privately negotiated contract which you can use to: Question 2 options: hedge prepayment risk on a pool of mortgages. hedge default risk on fixed income assets. hedge interest rate risk on fixed income assets. hedge exchange rate risk on euroyen deposits.
Organized exchanges offer important advantages like (a) mitigating credit risk and (b) providing liquidity. But they have the following market imperfections: 1. Open interest in futures contracts declines for longer maturities; so, for liquidity reasons, you may be unable to hedge longer deliveries using longer maturity futures contracts. Explain briefly how you would overcome these market imperfections.

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