TRUE FALSE In a Credit Default Swap CDS one party purchases

(TRUE / FALSE) In a Credit Default Swap (CDS), one party purchases from a counter-party “insurance” against the default of a debt instrument. It was not unusual to find these non-cash, synthetic derivative products in 2006 and 2007 CRE CDO securitizations.

Solution

True , it was also responsible for the financial crisis in 2007-08. Many CDSs were written by the Lahman brothers which they were not able to fulfill when crisis intiated.