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Which of the following credit derivatives gives the holder the right but not the obligation to buy a protection on a loan issue?

Credit Derivative. Which of the following credit derivatives gives the holder the right but not the obligation to buy a protection on a loan issue? This contract has a fixed expiration period.


1)Credit default option

2)Total return swap

3)Credit default swap

4)Credit swap

5)None of the above

Solutions

Expert Solution

The correct answer is 3rd.

Credit default swap.

Credit default swap gives the holder the right but not the obligation to buy protection on a loan issue. It is a type of credit derivative in which the buyer of the derivative has an option of whether to exercise his right or not. He has no obligation to exercise the buy. In this type of agreement, the buyer can buy the protection against any default on a loan.

jeff jeffy answered 2 years ago
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