Derivatives Q31
0. Which of the following accurately describes a credit derivative?
- A
In a credit derivative, the seller provides the buyer with protection against credit risk of a third party.
- B
At the initiation of the contract of a credit derivative, the buyer and seller provide a performance bond.
- C
The buyer and seller of a credit derivative are provided with a credit guarantee by the clearinghouse.
- Option : A
- Explanation : A credit derivative is a derivative contract in which the seller provides credit protection to the buyer against the credit risk of a third party. B and C are incorrect because these are characteristics of futures, not credit derivative.
