Is the analyst's firm likely to be buying or selling credit default swaps on a distressed firm? OA. They are most likely selling so they can eam a payoff if the distressed company ends up defaulting on their bonds. OB. They are most likely buying so they can earn a payoff if the distressed company ends up defaulting on their bonds. OC. They are most likely selling so they can provide additional funds to the company in order to help them avoid defaulting on their bonds. OD. They are most likely buying so they can provide additional funds to the company in order to help them avoid defaulting on their bonds.
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- Moral hazard or its reduction explain the following except: O A. Collateral requirements for loans. O B. The Enron and Tyco scandals. O C. The success of zero commission trading. O D. Covenants requiring borrowers to provide information periodically.Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: A. Explain credit risk from an individual and a loan portfolio management perspective and discuss how they relate to this case. B. Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of a risk management model. C. Discuss how this model can mitigate future credit risk issues for Washington Mutual.https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of a risk management model. Discuss how this model can mitigate future credit risk issues for Washington Mutual.
- “Financial intermediaries play a crucial role in an economic crisis–they are responsible for both causing the market to crash and then helping it recover from the crisis.” Is this statement true? Discuss with an example.Financial intermedires play a crucial role in an economic crisis they are responbile for both causing The market to crash and then helping it recover from the crisis is this statement true?Discuss with an exampleHow should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correct
- Your friend asks you (1) how a rural internet and telecommunications company like Windstream, not directly involved in the CDS market, could be hurt by the credit default swap transactions of its creditor, Aurelius Capital Management, a hedge fund and (2) why credit default swap transactions could pose potential threat to the U.S. financial system. ? (please answer 1 and 2 separately.)A commercial bank in Barbados faces serious liquidity problems; however, they have an asset that has the required value to meet their debt obligations. However, due to poor economic conditions, they may not get a buyer in time to purchase such an asset at their preferred price, so they may end up losing money for selling that asset lower than their preferred price, or if they choose not to sell the asset, they will not be able to meet their financial obligation. Which of the following strategy is best suited to manage the bank’s liquidity risk? Select one: a. Interest rate swaps b. Stress Tests c. Diversifying d. Hedgingi)discuss accounting issues in risk management, and explain the following terms: fair value hedge, cash flow hedge, foreign investment hedge, speculation ii)discuss some of the famous cases in which the lack of proper risk management policies and procedures have caused companies to incur large losses. iii)explain some general guidelines that senior management should follow to set up and maintain an effective risk management system. iv)explain how a currency swap can be used to hedge a stream of foreign cash flows. v)define interest rate derivatives, and compare and contrast them against bond derivatives.
- How do you think the shape of the yield curve for commercial paper and other money market instruments compares to the yield cure for treasury securities? Explain your own interpretation. Many financial institutions borrow heavily in the money markets using mortgages and montages backed securities as collateral. How do you explain the impact of the credit crisis on deficit and surplus units that participate in the money market? Do you think that the money market should be regulated to ensure proper collateral in the money market? Can you explain how activities in the secondary T-bill market are conducted? How can this kind of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source of funds?Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assetsThe investment banker does all of the following except a. make long-term investments for banking institutions b. advise clients c. bear the risk of selling a security issue d. act as a middleman between the issuer and buyer of a new security