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Question
Which of the following statements best describes the treatment of adjusting for credit risk of off-balance-sheet activities?
A. All OBS activities are treated equally in making credit-risk adjustments.
B. Standby letter of credit guarantees issued by banks to back commercial paper have a 50 percent conversion factor.
C. The credit or default risk of over-the-counter contracts is approximately zero.
D. The current exposure component of the credit equivalent amount of OBS derivative contracts reflects the credit risk if the contract counterparty defaults.
E. The treatment of interest rate forward, option, and swap contracts differs from the treatment of contingent or guarantee contracts.
Answer
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