Financial Risk Manager Part 1
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A credit manager at a US-based bank is preparing a presentation to a group of interns on the role of credit derivatives in the 2007-2009 financial crisis and on subsequent changes in the credit derivative markets. The manager describes some characteristics of credit derivatives and also discusses some regulatory changes unique to the credit derivative markets. Which of the following statements is correct regarding credit derivatives?
A
Credit derivatives can facilitate the transfer of credit risk without incurring significant funding liquidity risk.
B
Securitization is used primarily for repackaging corporate bank loans and is limited in its use for collateralized loan obligations.
C
The required retention of credit risk for originators of asset-backed portfolios was increased from 10% to 25% by the US Securities and Exchange Commission after the crisis.
D
Credit derivatives markets are effective in measuring default risk over longer time horizons but are ineffective in measuring default risk in real time.