PRMIA 8010 Exam - Topic 4 Question 72 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 72
Topic #: 4

[All 8010 Questions]

What ensures that firms are not able to selectively default on some obligations without being considered in default on the others?

ACross-default clauses in debt covenants

BChapter 11 regulations

CExchange listing requirements

DThe bankruptcy code

Show Suggested Answer

Suggested Answer: A

It is the cross-default clauses in debt agreements that generally provide that a default on one obligation is considered a credit event applying to all debts of the obligor, and therefore we are able to deal with credit risk at the borrower level, and not at the level of the individual security. It also helps avoid situations where borrowers can selectively default on some obligations while continuing to service others. Therefore Choice 'a' is the correct answer. The other choices are incorrect.

by Marta at Jun 13, 2025, 10:44 PM

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Kenny

2 months ago

Wait, are you sure about A? Seems too simple.

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Aleta

2 months ago

I think B is more relevant, Chapter 11 has strict rules.

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Wade

2 months ago

Definitely A, cross-default clauses are key.

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Sharika

3 months ago

C is important too, but A is the main reason.

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Joye

3 months ago

A makes the most sense, can't pick and choose defaults!

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Nadine

3 months ago

Exchange listing requirements might have some influence, but I feel like they don’t directly address the issue of selective defaults like cross-default clauses do.

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Alex

3 months ago

Chapter 11 seems more about restructuring than preventing defaults, so I’m leaning towards cross-default clauses, but I could be wrong.

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Julio

4 months ago

I remember practicing a question about debt covenants, and I think cross-default clauses were mentioned as a way to prevent selective defaults.

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Bernardine

4 months ago

I think cross-default clauses are really important because they link all obligations together, but I'm not completely sure if that's the only mechanism.

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Alyce

4 months ago

The bankruptcy code seems relevant here, but I'm not sure if that's the full answer. I'll need to think through the other options as well to be sure.

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Joaquin

4 months ago

I'm pretty confident the answer is A. Cross-default clauses are designed to prevent firms from defaulting on some obligations without being considered in default on others.

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Reynalda

4 months ago

Okay, I think I've got this. Cross-default clauses in debt covenants are what ensure firms can't selectively default. That makes sense to me.

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Mozell

5 months ago

Hmm, I'm a bit unsure about this one. I know cross-default clauses have something to do with it, but I'm not totally clear on the details. I'll have to review that concept.

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