A Credit Default Swap

question 38

Multiple Choice

A credit default swap

• A)Is what happens when homeowners swap their mortgages with their neighbors
• B)Is a way for investors in collateralized debt obligations (or CDO's)to make even more money
• C)Is a way for investors in collateralized debt obligations (or CDO's)to reduce the risk of an increase in mortgage foreclosures
• D)Is a way for investors to increase the risks to homeowners
• E)Exists only in markets with subprime mortgages

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Definitions:

Required Return

The minimum expected return an investor demands for an investment, reflecting its risk level.

Investment Centers

Business units or departments that are directly responsible for generating returns on assets allocated to them.

Controllable Margin

The portion of profit or margin that can be directly influenced by managing costs or expenses within a department or area.

Average Operating Assets

The average value of the assets used in the operation of a business, taken over a specific period, which may be used to evaluate the effectiveness of asset use in generating revenue.