In a Credit Default Swap, the Most a Seller of the Swap

question 40

Multiple Choice

In a credit default swap, the most a seller of the swap may have to pay is

• A) the monthly payment due to the swap buyer.
• B) the difference payment based on the fixed and variable interest rates on the swap.
• C) the par value of the insured security.
• D) the marking to market value of the underlying.

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Definitions:

Deferred Tax

A tax liability or asset that arises due to the temporary differences between the accounting income and the taxable income.

Income Tax Expense

The cost incurred by individuals or corporations due to income taxes.

Average Effective Tax Rate

The average effective tax rate is the actual percentage of their income that individuals or corporations pay in taxes, after all deductions and credits, across different jurisdictions.

Financial Asset

Any asset that is cash; an equity instrument of another entity; a contractual right to receive cash or another financial asset from another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or a contract that may be settled in the entity’s own equity instruments and is a non-derivative for which the entity may be obliged to receive a variable number of the entity’s own equity instruments, or a derivative that may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments.