Why does a credit default swap have an option-type payoff?
Answer to relevant Questions(a) What is meant by JPY LIBORBBA? (b) Describe the coupon interest characteristics of this bond. (c) What are the risks associated with investing in this bond if the investor’s home currency is not in Japanese yen. Does an investor who purchases a zero-coupon bond face reinvestment risk? What is meant by a linker? Explain why you agree or disagree with the following statement: “The price of an inverse floater will increase when the reference rate decreases.” Comment on the following statement: “Restructuring is included in credit default swaps and therefore the reduction in a reference obligation’s interest rate will result in the triggering of a payout. This exposes the ...
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