Credit risk in the swap market
A) is extensive.
B) is limited to the difference between the values of the fixed rate and floating rate obligations.
C) is equal to the total value of the payments that the floating rate payer was obligated to make.
D) is extensive and equal to the total value of the payments that the floating rate payer was obligated to make.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

Credit risk in the swap market is limited to the difference between the values of the fixed rate and floating rate obligations, not the total value of the payments. This is because the risk is based on the net difference at any point in time, not the gross payment flows.

Credit Risk in the Swap Market