20-55 in Determining the Risk-Adjusted Value of the On-Balance-Sheet Credit

question 25

True/False

20-55 In determining the risk-adjusted value of the on-balance-sheet credit equivalent amounts of the contingent guaranty contracts,the risk weights are determined by the credit rating of the underlying counterparty of the off-balance-sheet activity.

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Definitions:

Fixed Costs

Expenses that do not change in total amount with changes in the level of business activity or production volumes, such as rent, salaries, and insurance.

Unit Variable Cost

The cost associated with producing one unit of output, including labor, materials, and overhead, that varies directly with the level of production.

Fixed Manufacturing Costs

Costs that do not vary with the level of production output, such as rent, salaries, and insurance.

Net Income

The amount by which revenues exceed expenses.