Why are the credit default swaps, in essence, an insurance contract against the default of one or more borrowers?

Q: What does default mean? Does it occur only when borrowers fail to make scheduled loan payments?

A: Default is the risk involved in providing the mortgage loan. Default indicates the incapability of…

Q: What is the difference between a pass-through mortgage-backed security and a collateralized mortgage…

A: Introduction: Mortgage is nothing but an instrument of debt that the creditor is obliged to pay off…

Q: are, in essence, an insurance contract against the default of one or more borrowers.

A: A credit default swap (CDS) is a financial derivative or contract that allows an investor to "swap"…

Q: risks of Credit Default Swap?

A: Credit Default Swap: Credit default swap is an instrument which provides assistance for the market…

Q: Difference between regular bond and perpetuity bond?

A: Debt markets are markets where you contribute within the institutions or trade substances by the…

Q: How does the payment of a bank loan’s principal and a bond’s par value differ?

A: A bank loan is a common method and process for a business to acquire money and capital for various…

Q: in layman's terms, what is the diff. between a mortgage backed security and a credit default swap?

A: The borrowings made for purchasing fixed-assets like land, property, home and apartments is…

Q: Choose the best answer. 1.Which statement is TRUE about an insurance contract? * a.The insurer is…

A: IFRS: The full form of IFRS is international financial reporting standards. For the preparation of…

Q: When might a borrower want to have another party assume his liability under a mortgage loan?

A: There are basically two conditions when a borrower might want to have a third party:

Q: How does mortgage pay-through bond (MPTB) resemble a mortgage-backed bond (MBB)? How does it differ?

A: Introduction: The mortgage pay-through bonds are also called as hybrid securities. These bonds have…

Q: A contractual agreement in which the borrower receives something of value now and agrees to pay the…

A: Solution: A contractual agreement in which the borrower receives something of value now and agrees…

Q: What is the difference between life insurance and annuity?

A: Meaning:Life insurance is a cover on financial loss, and it is a contract between insurer and a…

Q: An installment note is a liability requiring a series of payments to the lender. True or False True…

A: Introduction: An instalment note is a legal obligation or liability that requires the lender to…

Q: What is private mortgage insurance?  How does it work to protect a lender from risk?   What are the…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: what are the pros and cons of being insured by a mutual insurance company vs a stock insurance…

A: There are two types of insurance companies: mutual insurance company and stock insurance companies.…

Q: Explain what credit default swap is and how CDS's can be used by financial institutions such as…

A: Swap is defined as the derivative contract by which the parties (two) used to exchange the cash…

Q: Explain further the effects/impacts of default on asset-backed security (ABS) to the financial…

A: The question is based on the concept of asset-backed security (ABS). ABS is a financial instrument…

Q: What is the consideration for the insurer in an insurance contract?

A: Contract:   Contract is an agreement among two parties or more parties which includes enforceable…

Q: How does credit risk affect insurance companies

A: Credit risks affect insurance companies in a tangible and often direct manner.

Q: When would there be a discount on a loan? How about a premium?

A: The loan is purchased to finance the purchase of equipment, education purposes, the purchase of…

Q: How does a credit default swap work?

A: The credit default swap is a financial derivative and an agreement between two parties. The seller…

Q: f the renewal of the policy was at the discretion of the insurer, would you expect the premiums to…

A: Insurance renewal means that the coverage on insurance continues to exist after expiration of the…

Q: are types of bond insurance available in the market (explain them)? How do the bond insurance affect…

A: Bond insurance are available in the market and this is done to improve the rating of bonds and…

Q: A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on…

A: Under stock market, there are two different markets working. One is primary market under which the…

Q: what is the difference between a debenture and a mortgage bond?

A: Bonds and debentures both are the fixed interest providing debt instruments issued by companies and…

Q: When a borrower is unable to repay its loan, it is common that the lender would negotiate with the…

A: Debt restructuring is available for companies, individual and also countries. It is adapted to…

Q: what underwriting risk. what are two risks faced by insurance companies?

A: The underwriting risk is the risk which is borne by the underwriter due to the inaccurate…

Q: The _______________ problem is when customers who are most likely to have a claim against an…

A: In a business, an adverse selection occurs where the knowledge distribution between the buyer and…

Q: What is the difference between a mortgage and amortgage-backed security?

A: Meaning of Mortgage Mortgage defines a loan against an asset or valuable object. Under Mortgage the…

Q: How is a credit default swap like insurance?

A: Swap is a type of financial derivative contract which transfers liabilities of one person to other…

Q: How do insurance companies calculate their premiums?

A: Insurance guarantees payment of a stated benefit after completion of a defined period. After expiry…

Q: What are the main differences in the underwriting guidelines between Freddie Mac and FHA loans

A: If the company issues share for the first time to the public, it is known as initial public offer.…

Q: Discuss the two theories of mortgage default. What are the most important factors that influence the…

A: Mortgage Default In simple term mortgage default which is described as default from the borrower to…

Q: A credit derivative allows creditors and debtors to _________ their exposure to credit risk. For…

A: A credit derivative is a financial contract that allows the parties to minimize their exposure to…

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.