| Credit Default Swaps (CDS) can be beneficial for an economy as they |
| 1. Helps in redistribution of loans. |
| 2. Enhance investment opportunities |
| 3. Leads to loan waivers. |
| Select the correct answer using the codes given below. |
A) 1 and 2 only
B) 1 and 3 only
C) 2 and 3 only
D) 1, 2 and 3
Correct Answer: A
Solution :
[a] CDS is a tool to transfer and manage credit risk. If giving credit (like lending) is made less risky by CDS, it would definitely increase the investor's interest thus enhancing investment opportunities. CDS does not waive off loans, it just redistributes the risk of lending.
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