A European-based fixed-income manager intends to underweight exposure to a BBB rated French media and telecommunications issuer.
Question:
A European-based fixed-income manager intends to underweight exposure to a BBB rated French media and telecommunications issuer. She observes that the issuer’s current on-the-run five-year CDS contract is trading at a spread of 110 bps p.a. with an EffSpreadDurCDS of 4.595. Which position should she take in the CDS market? Calculate the result if spreads widen to 125 bps for a €10 million notional position.
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Step by Step Answer:
The manager can underweight the issuers credit by purchasing protection in the CD...View the full answer
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