What is the function of a credit derivative?
A)to transfer risk to another party for a fee
B)to derive their value from the underlying debt instruments such as loans
C)for the purchaser of the credit derivative, to hedge default risk like an insurance policy against default would
D)All of the above are functions of a credit derivative.

Question

Quizplus · Accepted Answer

All of the listed options are functions of a credit derivative. Credit derivatives serve to transfer risk to another party for a fee, derive their value from underlying debt instruments, and can be used by the purchaser as a hedge against default risk, similar to an insurance policy.

What Is the Function of a Credit Derivative