Question

Which statements about the CDS market are true?

a. The North America CDX is an index of credit default swap contracts on investment grade names.

b. The ITRAXX is an index of European references.

c. The fixed rates paid by the buyers of credit default swaps are the points plotted on the swap curve, which like the yield curve, plots interest rates against maturity.

d. The ISDA creates the templates for CDS contracts, which may differ in their definitions of a restructuring event.

Answer 1

The most widely traded of the indices is the iTraxx Europe index, also known simply as 'The Main', composed of the most liquid 125 CDS refrenshing European investment grade credits, subject to certain sector rules as determined by the IIC and also as determined by the SEC.

So, the correct option is (B) The IRTAXX is an index of european refrences.

The rest statements like the North America CDX is an index of credit default swap contracts on investment grade names is not true as it is not based on investment grade names. so statement A is not true.

The ISDA creates the templates for CDS contracts, which may differ in their definitions of a restructuring event is false as ISDA creates Standardized contracts not customized contracts so statemnt D is also false.

The Fixed rates paid by the buyers of credit default swaps are the points plotted on the swap curve, which like the yield curve, plots interest rates against maturity is not a correct as Swap curve plots Floating rates .

So only correct statement is STATEMENT B.