Credit Spread Call Options Are Useful Because

question 23

Multiple Choice

Credit spread call options are useful because

• A)its value increases as the risk premium on a specified benchmark bond of the borrower increases above some exercise spread.
• B)an increase in the value of the call option will tend to offset the decreasing value of an FI's loan and net worth as the credit quality of the borrower decreases.
• C)they will always cause a loss at least equal to the required premium on the option.
• D)All of the above.
• E)Answers A and B only.

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Definitions:

Stress

The body’s response to any demand or challenge, which can be physical, mental, or emotional, and influences the state of both mental and physical health.

Eating Habits

Patterns or behaviors surrounding how and what individuals consume, often influenced by cultural, familial, and personal factors.

Independent Variable

The variable in an experimental setting that is manipulated or changed to observe its effect on a dependent variable.

Skin Conductance

A measure of the electrical conductance of the skin, which varies with its moisture level and is used as an indicator of psychological or physiological arousal.