The Existence of Counterparty Risk

question 95

Multiple Choice

The existence of counterparty risk

• A) has no effect on the contracting parties.
• B) is disallowed under current government regulations.
• C) results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners.
• D) reduces the risk introduced by forward contracts.

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Definitions:

Poor Credit Ratings

Indicates a low assessment of creditworthiness, suggesting that the individual or entity is a higher risk to lenders.

Relatively Safe

This term refers to something considered to be safe within a certain context or comparison but not absolutely risk-free.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable, and inventories.

Raytheon

A major American defense contractor and industrial corporation specializing in weapons, military, and commercial electronics.