12. A risk manager is advising the trading desk about entering into a digital credit default swap as a way to obtain credit protection. Which cash flow and delivery requirement will the desk most likely experience in the event of a default of the underlying reference asset?a. Receive the pre-agreed cash payment; deliver nothing.b. Receive [(Par Value) - (Market Value of Reference Asset)]; deliver the reference asset. c. Receive [(Par Value) - (Market Value of Reference Asset)]; deliver nothing.d. Receive the pre-agreed cash payment; deliver the reference asset.

A RISK MANAGER IS ADVISING THE TRADING DESK ABOUT ENTERING INTO A...

2015 FRM PRACTICE EXAM

12.

A risk manager is advising the trading desk about entering into a digital credit default swap as a way to

obtain credit protection. Which cash flow and delivery requirement will the desk most likely experience in the

event of a default of the underlying reference asset?

Receive the pre-agreed cash payment; deliver nothing.

Receive [(Par Value) - (Market Value of Reference Asset)]; deliver the reference asset.

Receive [(Par Value) - (Market Value of Reference Asset)]; deliver nothing.

Receive the pre-agreed cash payment; deliver the reference asset.