Answer-first summary for fast verification
Answer: is long credit exposure and would monetize a loss upon unwinding the position.
When a company's credit spread widens, it indicates deteriorating credit quality. The protection seller is long credit exposure (they benefit if the company's credit improves). When spreads widen, the CDS contract becomes more valuable to the protection buyer, meaning the protection seller would incur a loss if they unwind the position by buying back the protection at the new, higher spread.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
In a CDS position on a company whose credit spread has widened, the protection seller:
A
is long credit exposure and would monetize a gain upon unwinding the position.
B
is long credit exposure and would monetize a loss upon unwinding the position.
C
is short credit exposure and would monetize a loss upon unwinding the position.
No comments yet.