Financial Risk Manager Part 2
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Ultimate access to all questions.
Which of the following statements accurately compares the use of credit ratings, market-based credit default spreads, and CDS spreads in predicting default?
A
Credit ratings are the most reliable predictor of default as they provide a qualitative assessment of risk that is widely recognized and regularly updated.
B
Market-based credit default spreads offer the dynamic and granular insight into default risk, though they may be influenced by factors unrelated to default risk such as liquidity and investor demand.
C
CDS spreads are the preferred choice for predicting default due to their real-time updates and reflection of current information on default risk, despite their susceptibility to counterparty and liquidity risks.
D
Market-based credit default spreads are superior to both credit ratings and CDS spreads in predicting default, as they offer real-time updates and granular risk differentiation without being influenced by factors unrelated to default risk.