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Bank a makes a usd 10 million five-year loan and wants to

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Bank A makes a USD 10 million five-year loan and wants to offset the credit exposure to the obligor. A five-year credit default swap (CDS) with the loan as the reference asset trades on the market at a swap premium of 50 basis points paid quarterly. In order to hedge its credit exposure, bank A

A. Sells the five-year CDS and receives a quarterly payment of USD50,000.

B. Buys the five-year CDS and makes a quarterly payment of USD12,500.

C. Buys the five-year CDS and receives a quarterly payment of USD12,500.

D. Sells the five-year CDS and makes a quarterly payment of USD50,000.

Reference no: EM13569013

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