Principal loaned and expected interest payments at risk

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Reference no: EM132031112

1. Credit risk puts both the principal loaned and expected interest payments at risk. As a result, FIs issue financial claims that have a risk–return profile with

A. high probability of fixed upside return

B. high probability of large downside risk

C. low probability of large downside risk

D. both high probability of fixed upside returns and low probability of large downside risk

2. The positive difference between an FI's contingent liabilities and contingent assets represents:

A. an additional obligation, or claim, on the FI's net worth

B. an additional profit for the FI

C. an increase in assets

D. None of the listed options are correct.

Reference no: EM132031112

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