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Part II
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Credit Risk
Credit Risk
Easy
Clearwater Bank enters a pay-fixed, receive-oil-price commodity swap with Oakmont Energy, an oil exploration company. Oil prices subsequently decline by 40%. This situation most likely represents:
A
Wrong-way risk, because exposure to Oakmont increases as its creditworthiness deteriorates
B
Right-way risk, because the swap becomes less valuable as oil prices decline
C
General market risk, unrelated to counterparty credit quality
D
Specific wrong-way risk only if Clearwater Bank is also an oil company
Select an answer to continue
Tags
#wrong-way-risk
#counterparty-credit-risk
#commodity-swap
#exposure-correlation
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