The Likelihood That Borrowers Are Ill and Would Not Be

question 141

Multiple Choice

The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of

• A) interest rate risk.
• B) credit risk.
• C) liquidity risk.
• D) capital adequacy risk.

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Definitions:

Equal Magnitude

A term used to describe quantities or values that are the same in size, amount, or degree.

Pure Yield Pickup Swap

A strategy where an investor moves into higher-yielding securities, trading off shorter-duration or lower-quality bonds for higher yield, assuming additional risk.

Longer-Duration Bonds

Fixed-income securities with extended time frames to maturity, typically exposing investors to higher interest rate risk but potentially offering higher yields.

Shorter-Duration Bonds

Bonds with a near-term maturity date, typically less sensitive to interest rate changes and offering less yield compared to longer-duration bonds.