The Credit Risk on Swaps Is Considered to Be

question 88

Multiple Choice

The credit risk on swaps is considered to be

• A)more than the credit risk on loans.
• B)less than the credit risk on loans.
• C)same as the credit risk on loans.
• D)is negligible compared to the credit risk on loans.
• E)less likely to cause an FI to fail than is interest rate risk.

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Definitions:

Diminishing Returns

The principle stating that if one factor of production is increased while others remain constant, the overall returns will incrementally decrease after a certain point, leading to reduced efficiency.

Decreasing Returns to Scale

A situation in which a proportional increase in all inputs results in a less-than-proportional increase in output.

Cobb-Douglas Production Function

The Cobb-Douglas Production Function is an economic model representing the relationship of an output to inputs, typically showing how labor and capital contribute to the production process in a way that reflects diminishing returns.

Returns to Scale

The rate at which output increases as inputs are increased proportionally in the production process.