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Basic Question 1 of 5
An alternative to buying bonds for a financial institution to diversify its credit exposure would be to:
B. buy CDS protection.
C. buy the reference entity.
A. sell CDS protection.
B. buy CDS protection.
C. buy the reference entity.
User Contributed Comments 2
| User | Comment |
|---|---|
| schnurr | ‘To diversify its credit exposure”. Wouldn’t buying cds protection diversify its exposure as well? |
| Logaritmus | @up: Buying CDS is taking simillar credit risks. |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
describe the use of CDS to manage credit exposures and to express views regarding changes in shape and/or level of the credit curve;
describe the use of CDS to take advantage of valuation disparities among separate markets, such as bonds, loans, equities, and equity-linked instruments.
CFA® 2025 Level II Curriculum, Volume 4, Module 30.