The vast majority of credit derivative contracts held by commercial banks consist of credit
A)forward contracts.
B)futures contracts.
C)options.
D)swaps.

Question

Quizplus · Accepted Answer

Swaps are the most commonly used credit derivatives by commercial banks. With a credit default swap, a bank can hedge its exposure to the credit risk of a borrower or bond issuer by transferring that risk to another party in exchange for a periodic fee. This allows the bank to manage its credit risk more effectively and potentially reduce its regulatory capital requirements. Credit forward contracts are not widely used, credit futures contracts do not exist, and credit options are more commonly used by hedge funds and other investors rather than banks.

The Vast Majority of Credit Derivative Contracts Held by Commercial