A total return credit swap
A)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships.
B)involves exchanging an obligation to pay interest at a specified rate for payments representing the total return on a loan of a specified amount.
C)can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk.
D)All of the options.
E)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships and can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk.

Question

Quizplus · Accepted Answer

All the statements accurately describe aspects of total return credit swaps. They allow financial institutions (FIs) to maintain customer relationships while mitigating credit risk, involve the exchange of interest payments for the total return on a loan, and are crucial due to the significant impact of credit risk on FI stability.

A Total Return Credit Swap