[ 2009 FRM Sample Exam ] Quantitative Analysis Q16 defaults, against, arises, credit

lalamei

 

16. A credit loss on market-driven instruments such as swaps and forwards arises if:

A. Market rates move in your favor

B. Market rates move against you

C. Market rates move against and the counterparty defaults

D. Market rates move in your favor and the counterparty defaults

alexbao

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Babul

非常感谢

 

wuna

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lumi

谢谢

lalamei

 

Correct answer is Dfficeffice" />

A is incorrect ? credit loss will not arise in the absence of counterparty defaulting.

B is incorrect ? credit loss will not arise due to market rates move out of your favour.

C is incorrect ? credit loss will not arise due to market rates move out of your favour.  Whether counterparty defaults is irrelevant.

D is correct ? credit loss will arise due to the combination of rates move in your favour and counterparty defaults (condition for credit loss)