Economics · Financial Derivatives
A bank in India sells Credit Default Swap (CDS) protection on a Reference Entity's 5-year loan for a CDS Spread of 200 basis points (bps). A month later, the Reference Entity's credit rating is downgraded by CRISIL due to worsening financials. What is the immediate and expected impact on the market price of the CDS contract?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1The CDS Spread will increase, leading to an unrealized loss for the protection buyer.
- 2The CDS Spread remains unchanged, as CDS are not marked-to-market daily.
- 3The CDS Spread will increase, leading to an unrealized loss for the protection seller.✓
- 4The CDS Spread will decrease, leading to an unrealized gain for the protection seller.
Correct answer
The CDS Spread will increase, leading to an unrealized loss for the protection seller.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Financial Derivatives MCQs →Want more practice questions on Financial Derivatives?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Financial Derivatives