Question: 7. What is NOT the correct statement about CDS (credit default swap) (5 points)? a. It is an insurance against inflation. b. It is an

7. What is NOT the correct statement about CDS (credit default swap) (5 points)? a. It is an insurance against inflation. b. It is an insurance against default. c. It can be used as a speculative purpose (usually by hedge funds). d. Buyers of a CDS still need to worry about whether the issuer of the CDS will go bankrupt. e. Buyers are often pension funds who want to reduce their risk exposure. 8. What is NOT the correct statement about credit rating agencies (5 points)? a. Credit rating agencies are not liable for their ratings. b. Credit rating agencies help lenders to judge the default probability of corporations by providing them with overall rating grades of the corporations. c. AAA-rated firms tend to have lower default risk than BB-rated firms. d. Credit rating agencies are subject to perverse incentives because they can earn fees for giving optimistic ratings. e. They consider macroeconomic issues (systematic risk) as well as many issues that each firm independently faces (individual risk)

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