The Important Feature of the Credit Default Swaps (CDS) That

question 38

Multiple Choice

The important feature of the credit default swaps (CDS) that caused financial losses at American International Group (AIG) in 2008 was that the CDS required AIG to make payments when:

• A)houses financed by mortgage-backed securities went into foreclosure.
• B)prices of mortgage-backed securities fell.
• C)prices of mortgage-backed securities rose.
• D)issuers of mortgage-backed securities defaulted.

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Definitions:

Variable Costs

Expenses that fluctuate in direct proportion to the production or sales volume, for instance, direct labor and raw materials.

Budgeting

The process of creating a plan to spend your money, allocating financial resources for various purposes over a specified period.

Machine-hours

A measure of the operating time of machines or equipment, typically used as a basis for allocating manufacturing overhead in product costing.

Supplies Costs

Supplies costs are expenses related to the consumable items used in the operation of a business, not directly part of the finished product.