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Basic Question 4 of 5
Proponents of naked CDS argue that:
II. They provide more stability in the credit market.
III. They can be used to hedge against adverse economic conditions because even if an investor has no exposure to a borrower, the default of a sovereign entity or municipality imposes costs on investors.
I. They bring liquidity to the credit market.
II. They provide more stability in the credit market.
III. They can be used to hedge against adverse economic conditions because even if an investor has no exposure to a borrower, the default of a sovereign entity or municipality imposes costs on investors.
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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.