Ques28:

The treatment of adjusting for credit risk of off-balance-sheet (OBS) activities can be best be described as:

Select one:

A. All OBS activities are treated equally in making credit-risk adjustments.

B. The treatment of interest rate forward, option, and swap contracts differs from the treatment of contingent or guarantee contracts.

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. Standby letter of credit guarantees issued by banks to back commercial paper have a 50 percent conversion factor.