24-74 Which of the Following Is NOT a Reason for the Credit

question 41

Multiple Choice

24-74 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 across more than on 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:

Top-Down

An investment strategy that starts with global or macroeconomic factors before identifying specific stocks or sectors.

Bottom-Up

An investment approach that focuses on the analysis of individual stocks and de-emphasizes the significance of macroeconomic cycles and market cycles.

Derivatives

Financial securities whose value is derived from the value of an underlying asset or group of assets, such as futures and options.

Speculative Instruments

Financial instruments that carry a high degree of risk, as they are based on the speculation of future prices rather than fundamental or intrinsic values.