When Are the Standby Letters of Credit Used in Swap

question 43

Multiple Choice

When are the standby letters of credit used in swap agreements?

• A)When the counterparty is perceived to be of significantly lower credit quality than the other party.
• B)Where the swap agreement is made between parties of equal credit standing.
• C)Where the swap agreement is made between high-quality counterparties.
• D)When one party posts collateral in lieu of default.
• E)When the no-arbitrage condition does not hold good.

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Definitions:

Document

A written, drawn, presented, or memorialized representation of thought, often serving as legal evidence.

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders but not retired, often held to reissue for acquisitions or to resell to the public.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's profits and assets.

Company

An organization engaged in commercial, industrial, or professional activities, either for profit or not-for-profit.