Exam 3 – Question 192

[Anonymous]

Question 192:
Shouldn’t answer (c) be the correct answer in view of the explanation provided below?

Which of the following is not an event of default covered in the ISDA Master Agreement?

I. failure to pay or deliver
II. credit support default
III. merger without assumption
IV. Bankruptcy

 (a) I

 (b) II and III

 (c) All are considered events of default

 (d) IV
Your Response was incorrect
The correct answer is choice ‘a’
Note that events of default under the ISDA MA are caused by one of the parties that is considered ‘at fault’. In contrast, “termination events” are events for which no one is at fault, for example changes in legislation, illegality etc that still justify termination of the transactions under the contract.

The ISDA MA describes the following 8 types of events of default:

1. failure of pay or deliver
2. breach of agreement
credit support default
4. misrepresentation
5. default under specified transaction
6. cross default
7. bankruptcy
8. merger without assumption

All of the options presented in the question are events of default.

[Author]

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