Which of the Following Statements Is True

question 38

Multiple Choice

Which of the following statements is true?

• A)As with loans, swap participants deal with the credit risk of counterparties by setting bilateral limits on the notional amount of swaps entered into.
• B)As with loans, swap participants deal with the credit risk of counterparties by adjusting the fixed and/or floating rates by including credit risk premiums.
• C)As with loans, swap participants deal with the credit risk of counterparties by using Monte Carlo simulations to model potential default risk.
• D)As with loans, swap participants deal with the credit risk of counterparties by setting bilateral limits on the notional amount of swaps entered into and as with loans, swap participants deal with the credit risk of counterparties by adjusting the fixed and/or floating rates by including credit risk premiums.

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Definitions:

Skimming Pricing

Setting the highest initial price that customers really desiring the product are willing to pay when introducing a new or innovative product.

Highest Initial Price

A pricing strategy where a new product is introduced to the market at a high price before possibly lowering it later based on demand and competition.

Innovative Product

A new or significantly improved product that introduces a novel feature or fulfills a specific need in a new way.

Skimming Pricing

A pricing strategy where a high price is set for a new product to maximize profits from segments willing to pay more, before prices are lowered over time.