Financial institutions do not use options to hedge credit risk exposures as credit risk is a natural risk that comes with the core activities of the bank, namely lending.

Name: Financial institutions do not use options to hedge credit risk exposures as credit risk is a natural risk that comes with the core activities of the bank, namely lending.
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Question

Quizplus · Accepted Answer

Financial institutions do use options to hedge credit risk exposures as it allows them to transfer the risk to another party in return for a premium.

Financial Institutions Do Not Use Options to Hedge Credit Risk