the economics of money, banking, and financial markets

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14.7 Credit Derivatives

1. 
   

   ____ derivatives offer payoffs on previously issued securities, but ones that bear credit
   risk.
   A) Credit
   B) Bond
   C) Note
   D) Stock
   Answer: A
   Diff: 1 Type: MC Page Ref: 345
   Skill: Recall
   Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
   manage interest-rate and foreign-exchange risk

   
   


2. 
   

   Credit options are contracts where the purchaser gains the right to receive profits that are tied
   to ____.
   A) the obligation to buy or sell an underlying asset
   B) the price of an underlying security or to an interest rate
   C) the right to hold an underlying asset
   D) the right to switch payment streams
   Answer: B
   Diff: 1 Type: MC Page Ref: 345
   Skill: Recall
   Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
   manage interest-rate and foreign-exchange risk

   
   


3. 
   

   Which credit derivative is a combination of a bond and a credit option?
   A) A bond-linked note
   B) A linked note
   C) A credit-linked note
   D) None of the above
   Answer: C
   Diff: 1 Type: MC Page Ref: 346
   Skill: Recall
   Objective List: 14.3 Explain how managers of financial institutions use financial derivatives to
   manage interest-rate and foreign-exchange risk