Credit Derivatives Are Instruments That Banks Can Use

question 24

Multiple Choice

Credit derivatives are instruments that banks can use:

• A)to increase their profit.
• B)to increase their capital.
• C)to minimise their credit risk exposure.
• D)to increase their liquidity.

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Definitions:

Intellectual Property

Legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields.

Royalties

Payments made by one party to another for the right to use intellectual property, such as music, books, or patents, on an ongoing basis.

Creative Destruction

Creative destruction is an economic concept describing the process by which new innovations lead to the demise of older technologies or businesses, thereby fostering growth and economic progress.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial gain in excess of the opportunity costs.