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　　1.The most that the buyer of a credit default swap can expect to receive in the event of a default is:
　　A. Interest and principal payments originally scheduled.
　　B. The par value of the instrurnent.
　　C. A premium price for the instrurnent.
　　D. 85% of the originally scheduled payments.
　　2.A U.S. company has previously issued a dual currency bond that pays coupons in euros and principal in yen. A major subsidiary ofthe company is based in Germany and receives euro-denominated payments. The current price on the bond is 80 with a 20% probability of default. The anticipated recoverate is 60%. Which of the following statements is correct? Assume the interest rate is
　　zero.
　　A. The company faces wrong-way risk; risk-neutralloss rate equals 8%.
　　B. The company faces wrong-way risk; risk-neutralloss rate equals 20%.
　　C. The company faces right-way risk; risk-neutral loss rate equals 8%.
　　D. The company faces right-way risk; risk-neutral loss rate equals 20%.
　　3.A reverse knock-out option is more difficult to hedge than a standard option because the:
　　A. Market in such options is very illiquid.
　　B. Value changes dramatical1y at the barrier point.
　　c. Black-Scholes model does not apply to pricing such options.
　　D. Gamma of the option continually varies throughout the range of relevant strikes.
　　Answer:
　　1.B
　　In the event of default. the most that the buyer of a credit default swap can receive is the par value of the instrument.
　　2.D
　　The company faces right-way risk since the euro exposure is partially hedged (it pays euros on its debt but receives euros from sales).
　　risk-neutral mean loss rate = 1-80 1100 = 20%
　　mean loss rate = PD LGD = (0.2) (1-0.6) = 8%
　　3.B
　　The value relationship is discontinuous near the barrier, so hedge ratios are very unstable at that level.