Derivatives Q19

19Analyst 1: A credit derivative is a derivative contract in which the seller provides protection to the buyer against the credit risk of a third party.
Analyst 2: A credit derivative is a derivative contract in which the exchange provides a credit guarantee to both the buyer and the seller.
Which analyst’s statement is most likely correct?

Option : A
Explanation : A credit derivative is a class of derivative contracts between two parties, a credit protection buyer and a credit protection seller, in which the latter provides protection to the former against a specific credit loss.

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