Which of the following is NOT a reason for the credit risk on a swap to be less than the credit risk on a loan?
A)Swap contracts often extend beyond the maturity of normal loan contracts.
B)Swap payments can be netted more easily than on a loan contract.
C)Interest rate swaps involve interest,but not principal.
D)Differences in credit quality between parties can be equalized through the use of standby letters of credit.

Question

Quizplus · Accepted Answer

Swap contracts typically have lower credit risk than loans because they involve netting of payments and do not involve the exchange of principal, unlike loans. However, swap contracts do not necessarily extend beyond the maturity of normal loan contracts, making option A incorrect.

Which of the Following Is NOT a Reason for the Credit