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Consider the following statements: 1. Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity 2. The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller. Which among the above statement(s) is/are true? (A) 1only (B) 2 only (c) Both 1 and 2 (D) Neither 1 nor 2?
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Consider the following statements: 1. Credit Default Swaps (CDSs) are ...
The correct answer is (C) Both 1 and 2.
A credit default swap (CDS) is a financial instrument that allows a creditor to transfer the credit risk of a borrower to another party, called the protection seller, in exchange for a fee. The creditor, also known as the protection buyer, is usually a lender or an investor who holds a bond issued by the borrower. If the borrower defaults on its debt, the protection buyer can claim a payment from the protection seller to compensate for the loss. The protection seller is typically a financial institution that specializes in selling CDSs.
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Consider the following statements: 1. Credit Default Swaps (CDSs) are ...
Statement Analysis:

Statement 1: Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity.
- This statement is true. Credit Default Swaps are financial derivatives that allow the transfer of credit risk from one party (the creditor) to another party (the Protection Buyer).

Statement 2: The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller.
- This statement is incorrect. The creditor actually buys Credit Default Swaps from a financial institution or another party acting as a Protection Seller.

Correct Answer: (A) 1 only

Explanation:
- Credit Default Swaps (CDSs) are indeed contracts that allow a creditor to transfer credit risks to another party.
- However, the creditor does not buy CDSs from a dedicated financial institution called Protection Seller. The Protection Seller could be any financial institution or party willing to take on the credit risk in exchange for a premium.
- It is important to understand the roles of Protection Buyer and Protection Seller in a Credit Default Swap transaction to grasp the concept effectively.
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Consider the following statements: 1. Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity 2. The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller. Which among the above statement(s) is/are true? (A) 1only (B) 2 only (c) Both 1 and 2 (D) Neither 1 nor 2?
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Consider the following statements: 1. Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity 2. The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller. Which among the above statement(s) is/are true? (A) 1only (B) 2 only (c) Both 1 and 2 (D) Neither 1 nor 2? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements: 1. Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity 2. The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller. Which among the above statement(s) is/are true? (A) 1only (B) 2 only (c) Both 1 and 2 (D) Neither 1 nor 2? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements: 1. Credit Default Swaps (CDSs) are contracts that allows a creditor to "swap" or transfer credit risks to a different individual or entity 2. The creditor buys Credit Default Swaps from a dedicated financial institution called Protection Seller. Which among the above statement(s) is/are true? (A) 1only (B) 2 only (c) Both 1 and 2 (D) Neither 1 nor 2?.
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