Question: Credit default swaps a derivative instrument described in Chapter 30
Credit default swaps, a derivative instrument described in Chapter 30, allow investors to buy and sell protection against the default of a municipal issuer. Why do you think it is difficult to find investors who are willing to buy protection against default of a municipal issuer but a large number of investors are willing to sell such protection?
Relevant QuestionsAnswer the below questions. (a) Why doesn’t a Chapter 13 bankruptcy filing by a municipality allow for its liquidation? (b) What is the role of the bankruptcy court in a Chapter 13 bankruptcy case? What can you say about the typical relationship between the yield on short-term and long-term municipal bonds? In a revenue bond, which fund has priority when funds are disbursed from the reserve fund, the operation and maintenance fund or the debt service reserve fund? What are the different methods for the issuance of government securities? “The strongest argument for investing in nondollar bonds is that there are diversification benefits.” Explain why you agree or disagree with this statement.
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