Financial Risk Manager Part 1
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A financial analyst employed at a trading company is evaluating different strategies to mitigate risks linked to a portfolio. As part of this assessment, the analyst focuses on credit spreads, with a particular emphasis on understanding the risks tied to these spreads. Which of the following statements correctly describes an attribute of credit spread risk?
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A
The credit spread is equal to the difference between the actual rate of return of a risky financial instrument and the expected rate of return of that instrument.
B
In a mature financial market, a portfolio's market risk typically includes credit spread risk, interest rate risk, and model risk.
C
Credit derivatives can help to price the credit spread risk for a wide variety of financial instruments that have credit risk exposure.
D
Financial instruments that have credit spread risk are typically lliquid assets
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