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Answer: An investor who wants exposure only to the interest rate risk of a company's debt
An investor who wants exposure only to the interest rate risk of a company's debt would buy protection using CDS. By buying protection, they effectively remove the credit risk from the bond position, leaving them with only the interest rate exposure. This allows them to separate credit risk from interest rate risk in their portfolio.
Author: LeetQuiz Editorial Team
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Which of the following participants would most likely be buyers of protection using CDS?
A
A lender looking to increase exposure to a borrower
B
A trader who believes that the underlying is undervalued relative to the CDS
C
An investor who wants exposure only to the interest rate risk of a company's debt
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