Which of the Following Is the Best Definition of Credit

question 82

Multiple Choice

Which of the following is the best definition of credit default swap?

• A) Risk that futures prices will not move directly with cash price hedged.
• B) An option that gives the owner the right, but not the obligation, to buy an asset.
• C) A contract that pays off when a credit event occurs, default by a particular company termed the reference entity, giving the buyer the right to sell corporate bonds issued by
• The reference entity at their face value.
• D) Hedging an asset with contracts written on a closely related, but not identical, asset.
• E) A financial asset that represents a claim to another financial asset.

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Definitions:

Input Prices

The cost of resources used in the production process, including labor, materials, and capital.

Price Ceilings

Legal maximum prices set for particular goods and services, intended to protect consumers from very high prices.

Consumer Surplus

The variance between the actual cost paid by consumers and the maximum amount they're prepared to pay for a good or service.

Market Equilibrium

The point at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a stable market price.