Use the following statements to answer this question:
I.Credit default swaps (CDS)are a default premium on debt issue.
II.Credit default swaps (CDS)are insurance on the default of issuers of the debt.
A)I is correct, II is incorrect
B)I and II are correct
C)I and II are incorrect
D)I is incorrect, and II is correct

Question

Quizplus · Accepted Answer

Statement I is incorrect as credit default swaps are not a default premium, but rather a financial instrument used for hedging against credit risk. Statement II is correct as credit default swaps are a form of insurance where the buyer of the swap agrees to pay a premium to the seller in exchange for protection against the potential default of an issuer of debt.

Use the Following Statements to Answer This Question