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Understanding Credit Default Swaps

Understanding Credit Default Swaps

Assessment

Interactive Video

Business

11th - 12th Grade

Hard

Created by

Jennifer Brown

FREE Resource

5 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the primary purpose of a credit default swap?

To provide insurance against the failure of a security

To increase the value of a security

To diversify an investment portfolio

To guarantee a fixed return on investment

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Why are credit default swaps for equity tranches more expensive?

They are easier to trade

They cover high-risk securities

They are considered low risk

They offer a higher payout

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What makes senior tranche credit default swaps cheaper?

They are not affected by market changes

They have a higher rate of return

They are considered low risk

They are more likely to pay out

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In 2008, why did some investors buy a large number of credit default swaps?

They were following a market trend

They believed the market was undervalued

They identified misvalued securities

They wanted to diversify their portfolio

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What was the outcome for investors who bought credit default swaps during the 2008 crisis?

They suffered significant losses

They received a moderate return

They broke even

They achieved a massive payday

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