Question #19
Reading: Reading 29 Credit Default Swaps
PDF File: Reading 29 Credit Default Swaps.pdf
Page: 8
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Regarding CDS credit events, a CDS is least likely to pay off upon occurrence of a:
Answer Choices:
A. failure to pay
B. restructuring
C. bankruptcy
Explanation
CDS pay off upon occurrence of a credit event, which includes failure to pay, and
bankruptcy. Restructuring is not considered a credit event in some countries (such as the
United States, where bankruptcy is the preferred route.) Restructuring refers to events
such as: reduction or deferral of principal or interest, change in the currency in which
principal or interest will be paid, or change in an obligation's seniority or priority.