A Total Return Credit Swap

question 36

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 these.
• E)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from those 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:

Marginal Resource Cost

Marginal resource cost is the additional cost incurred by producing one more unit of a good or service.

Marginal Revenue Product

The extra income produced by the use of an additional unit of a resource, like labor or capital.

Total Output

The total quantity of goods or services produced by an economic entity in a given period.

Marginal Productivity Theory

An economic theory that suggests the wage or value of a worker's output is equal to the additional production the worker generates.