The following contracts impose a contingent liability on the bank:

Question

Quizplus · Accepted Answer

- Loan sales do not impose a contingent liability on the bank, as the bank has transferred the loan and any associated risk to the buyer.
- Options do impose a contingent liability on the bank, as the bank may be required to fulfill the obligation of the option if it is exercised.
- Standby letters of credit also impose a contingent liability on the bank, as they guarantee payments to be made by the bank if the beneficiary does not meet their obligations.

Therefore, only option B and C (also known as off-balance sheet activities) impose this contingent liability, and the correct answer is E.

The Following Contracts Impose a Contingent Liability on the Bank