The Default Risk Associated with Loans Made to Borrowers Outside

question 15

Multiple Choice

The default risk associated with loans made to borrowers outside a bank's home country is called:

• A) foreign exchange risk.
• B) sovereign risk.
• C) euro risk.
• D) country risk.
• E) LC risk.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, crucial in discounting and investment decision making.

Compounded Annually

A method of calculating interest where the accumulated interest is added to the principal at the end of each year, thereby earning interest in subsequent years.

Present Value

The calculated worth today of a future monetary sum or repetitive cash flows, utilizing a predetermined return rate.

Semiannual Interest

Interest that is calculated and paid twice a year, often used in bond and loan agreements.