The Effect to an FI of Default by the Counterparty

question 38

Multiple Choice

The effect to an FI of default by the counterparty to a derivative contract is LEAST serious with

• A)options contracts.
• B)futures contracts.
• C)swap agreements.
• D)forward contracts.
• E)loan commitments.

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Definitions:

Fixed Costs

Expenses that do not change with the amount of goods or services produced by a business.

Raw Materials

The basic materials from which products are made, often extracted from natural resources and used in manufacturing processes.

Breaking Even

The point at which total revenues equal total costs, resulting in no net loss or gain.

Net Present Value

A financial metric that calculates the present value of all future cash flows associated with a project, minus the initial investment cost.