Question #9

Reading: Reading 29 Credit Default Swaps

PDF File: Reading 29 Credit Default Swaps.pdf

Page: 4

Status: Unattempted

Correct Answer: A

Part of Context Group: Q9-11 First in Group
Shared Context
- Which of the following best describe Comments 1 and 2? A) Both comments are correct. B) Both comments are incorrect. C) Only one of the two comments is correct.
Question
Assume that Nathan sells $400 million of protection on the equally weighted CDX IG index which consists of 125 entities. Concerned about the creditworthiness of an entity A, he purchases $2 million of single-name CDS protection on entity
Answer Choices:
A. $1.2 million
B. $3.2 million
C. $2.0 million
Explanation
The investor is long $3.2 million notional ($400 million / 125) through the index CDS and is short $2 million notional through the single-name CDS. His net notional exposure is $1.2 million.
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