The credit risk on swaps is considered to be
A)more than the credit risk on loans.
B)less than the credit risk on loans.
C)same as the credit risk on loans.
D)is negligible compared to the credit risk on loans.

Question

Quizplus · Accepted Answer

The credit risk on swaps is generally lower than the credit risk on loans because swaps are collateralized agreements. This means that both parties involved in the swap must put up collateral to cover potential losses. In contrast, traditional loans are unsecured debt, meaning there is no collateral to protect the lender in case the borrower defaults. Therefore, swaps are considered to have less credit risk compared to loans.

The Credit Risk on Swaps Is Considered to Be