There are always ___ counterparties in a credit default swap:
A) 0
B) 1
C) 2
D) 3
E) more than three

Question

Quizplus · Accepted Answer

In a credit default swap, there are always two counterparties involved - the protection buyer and the protection seller. The protection buyer pays a premium to the protection seller and receives protection against the default of a third party (the reference entity). If the reference entity defaults, the protection seller is obligated to pay the protection buyer the face value of the reference entity's debt. Therefore, the correct answer is C - there are always two counterparties involved in a credit default swap.

There Are Always ___ Counterparties in a Credit Default Swap