Harlow Choate case - FI-credit

I have two problems with this question.:
For Q 4:

  1. For consideration 2- spread widening is not a tail risk- right? Tail risk is the black swan event.
  2. Quote from the text- ‘Derivatives are often the most inexpensive and capital-efficient tail risk hedges in the credit market, and those investors who cannot use derivatives may be unable to hedge certain tail risks.’

These both sentences are contradictory- can anyone clarify?

Is this from a topic test? I don’t have the case information, so my answers will be somewhat generic.

It can certainly be a tail risk. It will lead to lower returns, and if it’s sufficiently large, and more likely than models predict, then it would be a tail risk.

I’m not sure that I understand your question. Are you saying that you think that your sentence #2 contradicts your sentence #1? If so, I’m not sure why you think that; it doesn’t.

Sorry for being vague.

Thanks magician for your response. For 2nd one, I was talking about the sentence in quotation marks.

It’s not contradictory. Derivatives are cheap and effective, but some investors aren’t allowed to use them.