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.

---

Definitions:

Direct Materials

The raw materials directly used in the production of a product, easily traceable to the finished good.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing costs in the cost of a product.

Production Costs

Expenses directly and indirectly involved in creating a product, including materials, labor, and overhead costs.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a unit of product.