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Question
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.
E. All of the above are reasons for swaps to have less credit risk.
Answer
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