easy · FRM Part 2 Credit Risk
In a standard single-name credit default swap (CDS) contract, which of the following best describes the primary obligation of the protection buyer?
- Making a single lump-sum contingent payment equal to the full face value of the defaulted underlying reference obligation.
- Paying a periodic premium, known as the spread, to the protection seller until maturity or a credit event occurs.
- Providing collateral directly to the reference entity itself to improve its own perceived credit quality.
- Determining unilaterally, with absolutely no market or committee input, whether a credit event has occurred.
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