Economics · Economy
Consider the following statements regarding Credit Default Swaps (CDS): Statement I: Credit Default Swaps are financial derivatives that enable transfer of credit risk of a debt instrument between a protection buyer and a protection seller. Statement II: In a CDS contract, the protection buyer pays periodic premiums to the seller, who compensates the buyer in case of a credit event such as default. Which one of the following is correct in respect of the above statements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both Statement I and Statement II are correct, and Statement II is the correct explanation for Statement I.✓
- 2Both Statement I and Statement II are correct, but Statement II is not the correct explanation for Statement I.
- 3Statement I is correct, but Statement II is incorrect.
- 4Statement I is incorrect, but Statement II is correct.
Correct answer
Both Statement I and Statement II are correct, and Statement II is the correct explanation for Statement I.
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