Chapter 4 Credit Derivatives: Question Bank скачать в хорошем качестве

Chapter 4 Credit Derivatives: Question Bank

Credit derivatives are financial instruments that allow market participants to transfer or manage credit risk without buying or selling the underlying asset. They are commonly used by banks, financial institutions, and investors to hedge against the risk of default or deterioration in credit quality. The most widely used credit derivative is the credit default swap (CDS), in which one party pays a periodic premium in exchange for protection against a specified credit event, such as default or restructuring. Other credit derivatives include total return swaps and credit-linked notes. These instruments play a significant role in modern financial markets by improving risk distribution, enhancing liquidity, and enabling price discovery of credit risk. However, credit derivatives can also increase systemic risk if misused, as seen during the 2008 financial crisis. For FRM candidates, understanding credit derivatives is essential, as they are closely linked to credit risk measurement, counterparty risk, and regulatory capital management.