Pure credit swaps are swaps by which an FI receives the:
A)par value of the loan on default in return for paying a periodic swap fee
B)current value of the loan on default in return for paying a periodic swap fee
C)residual value of the loan on default in return for paying a periodic swap fee
D)outstanding interest payments on the loan on default in return for paying a periodic swap fee

Question

Quizplus · Accepted Answer

Pure credit swaps involve an arrangement where a financial institution (FI) receives the par value of a loan if the borrower defaults. In return, the FI pays a periodic fee to the counterparty of the swap. This setup is designed to protect the FI from the risk of default by transferring that risk to the swap counterparty.

Pure Credit Swaps Are Swaps by Which an FI Receives