Credit Spread Call Options Are Useful Because

question 18

Multiple Choice

Credit spread call options are useful because

• A)its value increases as the risk premium on a specified benchmark bond of the borrower increases above some exercise spread.
• B)an increase in the value of the call option will tend to offset the decreasing value of an FI's loan and net worth as the credit quality of the borrower decreases.
• C)they will always cause a loss at least equal to the required premium on the option.
• D)All of the options.
• E)its value increases as the risk premium on a specified benchmark bond of the borrower increases above some exercise spread and an increase in the value of the call option will tend to offset the decreasing value of an FI's loan and net worth as the credit quality of the borrower decreases.

---

Definitions:

Express

Express refers to a mode of communication or transportation that is fast and direct.

Condition

A specific requirement or stipulation that must be met for a contract or agreement to become effective or for certain actions to be taken.

Vehicle

A means of transporting goods or persons, typically on land, such as cars, trucks, or bicycles.

Discharge by Performance

The termination of contractual obligations by fully executing the tasks or duties outlined in the contract.