The payment of any compensation for loss is contingent on the actual occurrence of a credit-related event under a
A) Total return swap.
B) Credit default swap.
C) Collar.
D) Forward rate agreement.
E) Swap agreement.

Question

Quizplus · Accepted Answer

The payment of compensation for loss is a feature of a credit default swap, which is a contract between two parties where one party has protection against the credit risk of a reference entity (issuer of a bond or loan). Compensation is paid out if there is a credit event, such as default or bankruptcy, related to the reference entity. The other listed instruments (total return swap, collar, forward rate agreement, and swap agreement) do not necessarily involve compensation for loss related to credit events.

The Payment of Any Compensation for Loss Is Contingent on the Actual