A Total Return Credit Swap

question 37

Multiple Choice

A total return credit swap

• A)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships.
• B)involves exchanging an obligation to pay interest at a specified rate for payments representing the total return on a loan of a specified amount.
• C)can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk.
• D)All of the options.
• E)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships and can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk.

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Definitions:

Intra-entity Gains

Profits realized from transactions within the same entity, often eliminated in preparation of the consolidated financial statements.

Separate Tax Returns

Tax filings made by individuals or married couples separately, rather than a joint tax return, often to optimize tax liability.

Intra-entity Dividends

Dividends that are paid by one part of a company to another part of the same company.