Credit Derivatives Mastery Quiz

Create an image of a financial analyst working on credit derivatives, surrounded by charts and papers explaining credit default swaps, bond spreads, and market trends, with a modern office background.

Credit Derivatives Mastery Quiz

Test your knowledge on credit derivatives with this comprehensive quiz. Dive into the world of CDS, CDOs, and credit events, and see how well you understand these complex financial instruments.

Whether you’re a student, a finance professional, or just curious about credit derivatives, this quiz will challenge your understanding and expand your knowledge. Topics covered include:

Credit Default Swaps
Credit Linked Notes
CDOs and Synthetic CDOs
Market Dynamics and Risk Factors

27 Questions7 MinutesCreated by AnalyzingTrader203

To which family does the CDS belong to

Derivatives based on defaults

Derivative based on spread

Derivative replicating a full asset performance

Derivative based on return

Which are the payoffs in case of a credit event

Credit payoff

Phisical payoff

Cash Payoff

Fixed payout

In a credit link note you receive the money upfront and only return it in case of no credit event

True

False

An investor can buy protection for the underlying asset without owning it

True

False

A put on bond spread is ITM (in the money)

Credit quality is deteriorating

Credit quality is improving

A call on bond spread is ITM (in the money)

Credit quality is deteriorating

Credit quality is improving

In a total rate of return swap the protection buyer:

Receives Coupon+Var Market value and pays Libor+spread

Receives the Libor+Spread and pays Coupon+Var Market value

Is synthetically short on the asset

Is synthetically long on the asset

What are the risks of a CDS for a protection buyer

Cross default of underlying and protection seller

Risk of not receiving the protection fee

Additive risk effect

If the market has a lot of liquidity we observe

CDS Spread>Bond spread

CDS Spread<Bond spread

In a basket of default swaps with 20 assets, if we have a 1st to default order then

The higher the correlation the higher the probability of default

The lower the correlation the lower the probability of default

The higher the correlation the lower the probability of default

In a basket of default swaps with 20 assets, if we have the 20th to default order then

The lower the correlation the lower the probability of default

The higher the correlation the lower the probability of default

The lower the correlation the higher the probability of default

What's the difference between a cdo and a synthetic cdo

A cdo is backed by a pool of assets and a synthetic cdo by a pool of cds

A cdo is backed by a pool of cds and a synthetic cdo by a pool of assets

You have 100 CDS each valued at 1€ with a recovery rate of 40%. If after 1 year one defaults what will be the flows of payment between Protection buyer (PB) and protection seller (PS)

The PB pays 99.6*spread and PS pays 0.4

The PB pays 99.4*spread and PS pays 0.6

In a highly correlated basket of cdo's price is equal to

The cds with the lowest spread

The cds with the lowest price

The cds with the highest spread

If you are an investor you prefer

A highly correlated portfolio

A low correlated portfolio

Which is cheaper?

A correlated portfolio

An uncorrelated portfolio

The price of a highly correlated portfolio is equal to the highest spread

True

False

The price of an uncorrelated portfolio is equal to the sum of the spreads

True

False

A high spread signifies a high probability of default

True

False

In the case of first to default, a protection seller prefers

Uncorrelated basket

Correlated basket

In case of 20th to default a protection seller prefers

Uncorrelated basket

Correlated basket

The 3 factors that impact the price of the basket are

Correlation of Assets/Average or Sum of Risks/Spread Dispersion

Risk free rate/Average or Sum of Risks/Spread Dispersion

Risk free rate/Average or Sum of Risks/Standard deviation of the assets

What does the volatility smile imply

For a call we need to decrease the strike to compensate for the volatility and for the put we need to increase the strike to account for volatility

For a call we need to increase the strike to compensate for volatility and for the put we need to decrease the strike to account for volatility

The loss write function(Lt) gives us the maximum the protection buyer would pay given the % of default tranche

True

False

The higher the correlation of a basket the more probability we have of extreme events

True

False

Credit Derivatives Mastery Quiz

Credit Derivatives Mastery Quiz

More Quizzes