Credit default swaps:
A) will pay the holder the LIBOR interest rate.
B) pay the borrower the LIBOR interest rate.
C) are like insurance against a loss of value if the firm defaults on a bond.
D) limit the amount of borrowing of all parties in the credit default swap.

Question

Quizplus · Accepted Answer

Credit default swaps act as a form of insurance against the default of a bond issuer, compensating the holder for any loss in value. They do not directly involve payments based on LIBOR interest rates nor do they limit borrowing amounts.

Credit Default Swaps