Which of the Following Is NOT a Reason for the Credit

question 24

Multiple Choice

Which of the following is NOT a reason for the credit risk on a swap to be less than the credit risk on a loan?

• A)Swap contracts often extend beyond the maturity of normal loan contracts.
• B)Swap payments can be netted more easily than on a loan contract.
• C)Interest rate swaps involve interest, but not principal.
• D)Differences in credit quality between parties can be equalized through the use of standby letters of credit.
• E)All of the above are reasons for swaps to have less credit risk.

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Definitions:

Direct Labor

The cost of wages for employees who are directly involved in producing a product or delivering a service.

Raw Material

The basic material from which a product is made, typically unprocessed or minimally processed substances used in manufacturing.

Direct Labor

Refers to the wages or salaries paid to workers directly involved in the production of goods or services.

Fixed Manufacturing Overhead

Indirect manufacturing costs that remain relatively constant regardless of the level of production, such as rent, insurance, and salaries of permanent staff.