Answer-first summary for fast verification
Answer: mitigates exposure to interest rate risk.
Selling CDS protection mitigates exposure to interest rate risk compared to buying the bond directly. When you sell CDS protection, you're taking on credit risk but not the interest rate risk that comes with owning the actual bond. This is because CDS contracts are typically structured to be less sensitive to interest rate movements than the underlying bonds.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
Compared to a bond purchase, a sale of CDS protection on the bond's issuer most likely:
A
incurs higher transaction costs.
B
establishes a less liquid position.
C
mitigates exposure to interest rate risk.
No comments yet.