05 Credit default swaps contributed to the crisis in all the following reasons e

Question

05 Credit default swaps contributed to the crisis in all the following reasons except:

Financial institutions relied heavily on credit default swaps to protect themselves from default risk.

Credit defaults swaps relaxed the lending standards of banks.

Banks used credit default swaps and securitization to shift risks off their balance sheet.

All of the above are true.

Financial institutions relied heavily on credit default swaps to protect themselves from default risk.

Credit defaults swaps relaxed the lending standards of banks.

Banks used credit default swaps and securitization to shift risks off their balance sheet.

All of the above are true.

Explanation / Answer

D - All of the above appears plausible

Financial institutions relied heavily on CDS to shift credit risk off their balance sheet, which in turn relaxed the lending standards of the financial institutions.

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