Tiêu đề Reading 29 Credit Default Swaps.pdf ✅

Question #1 of 20 Question ID: 1473588 Gill Westmore is the fixed income portfolio manager for Allied Insurance. Westmore has bought protection using a 2-year CDS on CDX-IG (125 constituent) index. The notional is $200 million. Company X, an index constituent defaults and trades at 25% of par. The payoff on the CDS on account of default of X and the notional principal of the CDS after default are closest to: Payoff Notional A) $1.5 million $198 million B) $1.6 million $200 million C) $1.2 million $198.4 million Question #2 of 20 Question ID: 1473589 Which of the following statements about credit default swaps (CDS) is least accurate? A credit default swap's reference obligation is: A) typically a senior unsecured bond. B) the only obligation of the reference entity covered by a single-name CDS. C) delivered by the protection buyer to the protection seller, upon default, in the case of physical settlement. Question #3 of 20 Question ID: 1473608 Which of the following strategies would be most appropriate use of CDS given an expectation of credit curve steepening? A) A curve flattening trade. B) A curve steepening trade.


Question #9 - 11 of 20 Question ID: 1473612 Assume that Nathan sells $400 million of protection on the equally weighted CDX IG index which consists of 125 entities. Concerned about the creditworthiness of an entity A, he purchases $2 million of single-name CDS protection on entity A. What is the investor's net notional exposure to Company A? A) $1.2 million. B) $3.2 million. C) $2.0 million. Question #10 - 11 of 20 Question ID: 1473613 Describe a potential curve trade that Nathan could use to hedge the default risk of ABC Company. A) Nathan should position himself short in the short term CDS and short in the long term CDS. B) Nathan should position himself long in the short term CDS and short in the long term CDS. C) Nathan should position himself short in the short term CDS and long in the long term CDS. Question #11 - 11 of 20 Question ID: 1473614 The most appropriate trade for the VAX bond is: A) short the VAX bonds and buy the CDS. B) long the VAX bonds and buy the CDS. C) long the VAX bonds and sell the CDS. Question #12 of 20 Question ID: 1473601