In a pure credit swap the FI lender makes a payment each period in exchange for the payment of interest in any period that the borrower defaults on the loan.

Question

Quizplus · Accepted Answer

In a credit swap, the lender typically pays a premium upfront and agrees to pay the borrower in case of default. The borrower does not make payments to the lender as in a regular loan or a credit default swap where the protection buyer pays a premium to the protection seller.

In a Pure Credit Swap the FI Lender Makes a Payment