Prepare a one-page briefing document that sets out how credit default swap can help the bank (SNB)
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Question:
Prepare a one-page briefing document that sets out how credit default swap can help the bank (SNB) in the following example reduce the probability of suffering a credit loss. Super National Bank (SNB) has a $50,000,000 debt exposure to Wilkin Ltd. SNB has the opportunity to arrange a credit default swap with All American Bank to cover this exposure. The individual probabilities of default for each of the parties is as follows:
Super National Bank: 0.15%
All American Bank: 0.40%
Wilkin Ltd: 4.5%
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