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Derivative Instruments and Hedging Activities
?
How does downgrade risk differ from credit spread risk?
Downgrade risk originates from interest rate shifts while credit spread risk
originates from shifts in default possibility.
Downgrade risk moves in one direction only (down) while credit spread risk can
move in either direction (up or down).
Downgrade risk originates from a review by an independent agency while credit
spread risk originates from a reaction in the financial markets.
Downgrade risk is most influenced by world events while credit risk is most
influenced by company-specific events.
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Correct
- Your answer is correct.
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