
Explanation:
The correct answer is C.
Wrong-way risk is defined as the risk that occurs when exposure to a counterparty is adversely correlated with the credit quality of that counterparty. In other words, as the exposure to the counterparty increases, the creditworthiness of that counterparty decreases, which heightens the risk of default precisely when the potential loss would be the greatest.
Q.2688 The risk that the exposure to a counterparty is adversely correlated with the credit quality of that counterparty is known as:
A
Concentration risk
B
Settlement risk
C
Wrong-way risk
D
Credit migration risk
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