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Credit Risk and Default Probability Quiz

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Credit Risk and Default Probability Quiz

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Questions and Answers

What is the traditional credit risk related to?

Default on payments (correct)

Losses from counterparty failure

Failure of large organizations

Settlement risk in financial derivatives

What is the likelihood of default known as?

Counterparty risk

Probability of default (correct)

Pre-settlement risk

Settlement risk

Where does counterparty risk arise from?

Settlement risk

Failure of large organizations

Lending or sales

Financial markets (correct)

What is pre-settlement risk also known as?

Replacement risk Signup and view all the answers

How can losses from the failure of a counterparty be evaluated?

In terms of current and potential exposure to an organization Signup and view all the answers

What is default risk primarily concerned with?

The failure to make interest payments to lenders Signup and view all the answers

What does the probability of default refer to?

The likelihood of a debt issuer failing to make contractual interest payments Signup and view all the answers

Why is credit risk often considered a one-way risk?

It exists when an organization is owed payment or an obligation by another party Signup and view all the answers