The ABC Bank Enters into a Credit Default Swap with XYZ

question 1

Multiple Choice

The ABC Bank enters into a credit default swap with XYZ Financial.The notional amount of the swap is $50 million.The 5-year swap is based upon a 5-year loan to LMN Corp.The size of the protection payment is 3% per year.As LMN bankrupts during the time this swap is still valid,XYZ has paid ABC $22.5 million for settlements.What is the recovery ratio on the underlying loan?

• A)60%
• B)55%
• C)45%
• D)40%

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Definitions:

Optical Insurance

A type of health insurance coverage that includes benefits for vision care, including eyeglasses, contact lenses, and eye exams.

Dental Insurance

A type of health insurance designed to cover a portion of the costs associated with dental care, including routine check-ups, cleanings, x-rays, and other treatments.

Unemployment Compensation

Financial payments made to individuals who have lost their job without fault on their own part, intended to provide temporary financial support.

Implied Employment Contract

An implied employment contract suggests terms of employment based on actions, conduct, or situational circumstances, rather than a written or verbal agreement.