20-112 the Current Exposure Component of the Credit Equivalent Amount

question 6

Multiple Choice

20-112 The current exposure component of the credit equivalent amount of OBS derivative items reflects

• A)the probability of an adverse price movement in contracts.
• B)the cost of replacing a contract if a counterparty defaults today.
• C)the probability today of a counterparty contract default in the future.
• D)the maximum price loss for any given position.
• E)future volatility of the underlying.

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Definitions:

Monopolistic Competition

Market structure in which large numbers of buyers and sellers exchange heterogeneous products so each participant has some control over price.

Homogeneous Product

A product that is virtually indistinguishable from the same products offered by different suppliers in the market.

Control Over Price

The ability of a company or seller to dictate the price of a product or service in the market.

Pure Competition

A market structure characterized by an extremely high level of competition, where there are many sellers offering standardized products.