Issuing a ________ is the same as providing insurance on the debt instrument because, just like insurance, it makes a payment to the holder when there is a negative credit event.
A)debit note
B)debit-default swap
C)credit-default swap
D)credit note

Question

Quizplus · Accepted Answer

The term that best fits the given description is a credit-default swap (CDS). A CDS is an agreement between two parties (the protection buyer and the protection seller) in which the protection seller promises to compensate the protection buyer in case of default or other negative credit events. In other words, a CDS is a type of insurance that offers protection against credit risks. A debit note and a credit note are accounting documents that record a debit or a credit transaction, respectively, while a debit-default swap is not a valid term.

Issuing a ________ Is the Same as Providing Insurance on the Debt