2016-FRR Exam Dumps | Which of the following risk types are historically associated with credit derivatives? I. Documentation

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GARP.2016-FRR.v2025-06-21.q161
Question 128

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Question 128/161

Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk

A. I, IV

B. I, II

C. I, II, III

D. II, III, IV

Correct Answer: C

Credit derivatives historically carry several specific types of risk:
* Documentation Risk:The risk arising from the complexity and potential ambiguity in the legal documentation of credit derivative contracts.
* Definition of Credit Events:The risk associated with the precise definition of what constitutes a credit event, such as a default, which can be subject to interpretation and affect payouts.
* Occurrence of Credit Events:The actual risk that a credit event will occur, triggering the derivative contract.
Enterprise risk is a broader category that typically includes all risks faced by an enterprise, not just those associated with credit derivatives.
References
* Verified information on credit derivative risks from the document

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