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GARP 2016-FRR Exam - Topic 1 Question 5 Discussion

Which one of the following four statements regarding counterparty credit risk is INCORRECT?
D) Dynamic collateral provisions often increase counterparty risk considerably.
A) Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
B) The exposure at default is variable due to fluctuations in swap valuations.
C) The exposure at default can be negatively correlated to probability of default.

GARP 2016-FRR Exam - Topic 1 Question 5 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 5
Topic #: 1
[All 2016-FRR Questions]

Which one of the following four statements regarding counterparty credit risk is INCORRECT?

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Suggested Answer: D

by Lorita at May 01, 2025, 10:21 AM

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Freeman
7 months ago
Agreed, A is spot on!
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Lai
7 months ago
B makes sense, swap valuations do fluctuate a lot.
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Stevie
7 months ago
I think D is misleading; dynamic collateral can actually reduce risk.
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Estrella
7 months ago
Wait, C sounds off. How can exposure be negatively correlated to default?
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Jaime
7 months ago
A is definitely correct about counterparty credit risk.
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Hyun
8 months ago
I feel like B is the one that could be incorrect. The exposure at default being variable due to swap valuations makes sense, but I can't shake the feeling that there's something wrong with it.
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Salena
8 months ago
I have a vague memory of dynamic collateral provisions increasing risk, but I'm not confident about that. D might be the incorrect one, but I need to think more about it.
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Avery
8 months ago
I think I saw a similar question about exposure at default in practice exams. If I recall correctly, C seems off because exposure at default usually increases with higher probability of default.
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Lenna
8 months ago
I remember studying counterparty credit risk, but I'm not entirely sure which statement is incorrect. I think A sounds right, but I could be mistaken.
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Dell
9 months ago
Dynamic collateral provisions can actually increase counterparty risk? That's an interesting twist. I'll need to double-check my knowledge on that aspect.
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Devora
9 months ago
I feel pretty confident about this topic. I'll quickly review the key points and then select the statement that doesn't align with my understanding.
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Coleen
9 months ago
Okay, let's think this through step-by-step. I'll start by defining counterparty credit risk, then evaluate each statement against that definition.
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Nadine
9 months ago
Hmm, I'm a bit unsure about this one. I'll need to make sure I understand the key concepts around counterparty credit risk before attempting to answer.
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Beula
9 months ago
This looks like a tricky question on counterparty credit risk. I'll need to carefully review each statement to determine which one is incorrect.
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Alverta
1 year ago
I'm cracking up at the idea of 'dynamic collateral provisions' increasing counterparty risk. That's like saying 'fire extinguishers increase the risk of fire'.
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Paola
1 year ago
Celestina: Agreed. It's important to understand these concepts in order to manage risk effectively.
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Celestina
1 year ago
User 2: Definitely. Dynamic collateral provisions should reduce risk, not increase it.
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Hannah
1 year ago
User 1: I know, right? It doesn't make sense.
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Raylene
1 year ago
I think statement B is incorrect, exposure at default is not variable due to fluctuations in swap valuations.
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Tonja
1 year ago
I believe the exposure at default can be positively correlated to probability of default.
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Marilynn
1 year ago
I agree with Joaquin, dynamic collateral provisions can actually reduce counterparty risk.
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Salena
1 year ago
D all the way! Dynamic collateral provisions? Sounds like a recipe for disaster. Who comes up with these exam questions anyway?
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Shaunna
1 year ago
C) The exposure at default can be negatively correlated to probability of default.
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Kathrine
1 year ago
B) The exposure at default is variable due to fluctuations in swap valuations.
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Jose
1 year ago
A) Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
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Lorenza
1 year ago
Hmm, this is a tough one. I'm going to have to go with C. The exposure at default can be negatively correlated to probability of default. Sounds counterintuitive, but it makes sense if you think about it.
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Karl
1 year ago
I'm going with B. The exposure at default is variable due to fluctuations in swap valuations. Seems pretty straightforward.
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Teddy
1 year ago
User4: I see your point, User3. D does seem like it could be the incorrect statement.
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Nohemi
1 year ago
User3: I'm not sure, but I think D is the incorrect statement. Dynamic collateral provisions should reduce risk, not increase it.
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Dino
1 year ago
User2: I agree with User1. A sounds like the incorrect statement.
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Vesta
1 year ago
User1: I think A is incorrect. Counterparty credit risk is about default, not gains.
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Joaquin
1 year ago
I think the incorrect statement is D.
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Luz
1 year ago
I think the correct answer is D. Dynamic collateral provisions often increase counterparty risk considerably. That just doesn't make sense to me.
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Lucille
1 year ago
User 3: I believe it's A. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
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Hobert
1 year ago
User 2: I think the exposure at default being negatively correlated to probability of default is the incorrect statement.
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Adelle
1 year ago
User 1: I agree, dynamic collateral provisions increasing counterparty risk doesn't sound right.
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