Which of the following credit derivatives is not a pure credit risk instrument, i.e., is a bet on more than just credit risk?

Question

Quizplus · Accepted Answer

Total return swap is not a pure credit risk instrument as it involves both credit risk and market risk. It is a contract between two parties in which one party agrees to pay the total return of a specific asset or index to the other party, in exchange for a fixed or floating payment. This includes credit risk as well as market risk, such as interest rate risk, currency risk, etc. The other options - credit spread forwards, credit spread options, and credit default swaps - are all pure credit risk instruments that allow investors to hedge, transfer or speculate on credit risk specifically.

Which of the Following Credit Derivatives Is Not a Pure