Which of the following is in essence an insurance contract against the default of one or more borrowers?
A. Collateralized debt obligations
B. Credit default swaps
C. Both A and B
D. Neither A nor B
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Which of the new risk-shifting tools enabled investment banks to carve out AAA-rated securities from original-issue “junk” loans?
A. Collateralized debt obligations
B. Credit default swaps
Credit default swap options
D. Credit spread forward
Which of the following arises when the knowledge that IMF rescue packages are possible leads lenders to be less careful about their international lending practices?
A. Global contagion
B. Moral hazard
C. Debt overhang
Debt restructuring
Which of the following is a plausible effect of a rescue package provided to a country?
A. It can stimulate the outflow of capital from the country.
B. The rescue package can limit any contagion effects.
C. It immediately restarts new private foreign lending to the country.
D. It can help avoid the problem of moral hazard.
Which of the following measures to resolve financial crises involves loan commitments to assist a country in getting through a crisis?
A. Debt repudiation
B. Loan amortization
C. A rescue package
Debt restructuring