What Is the Purpose of a Credit Forward Agreement

question 36

Multiple Choice

What is the purpose of a credit forward agreement?

• A)To allow property-casualty insurers to hedge the extreme losses that occur after major catastrophes.
• B)To adjust prices on outstanding futures each day to reflect current futures market conditions.
• C)To facilitate the future exchange of an asset for cash at a price that is determined daily.
• D)To hedge a cash asset on a direct dollar-for-dollar basis with a forward or futures contract.
• E)To hedge against an increase in the default risk of a loan.

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Definitions:

Generalization

When a conditioned response is elicited in response to things similar to the conditioned stimulus.

Discrimination

Narrowing the conditions that produce the conditioned response.

Deconditioning

Reversing conditioning to eliminate the conditioned response.

Conditioned Response

The response produced by the conditioned stimulus after classical conditioning (e.g., salivation following the sound of the bell).