Which of the Following Statements Concerning Credit Default Swaps Is

question 3

Multiple Choice

Which of the following statements concerning credit default swaps is FALSE?

• A)As of year-end 2008, CDSs are completely outside of regulatory boundaries.
• B)A CDS is a derivative security that may be used for hedging risk or for speculative purposes.
• C)In order be a party to a CDO, at least one of either the buyer or seller must own the underlying asset.
• D)CDSs allow banks to severe their links to their borrowers, thereby reducing their incentive to screen and monitor the ability of borrowers to repay.

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Definitions:

Double-Declining-Balance Method

A form of accelerated depreciation where an asset loses value at twice the rate of the traditional straight-line method.

Depreciation

Methodically dividing the cost of a tangible asset throughout its effective life.

Residual Value

The estimated amount that an asset will be worth at the end of its useful life, after it has been fully depreciated.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life evenly.