Question

a bank lender is concerned about the creditworthiness of one of its major borrowers. the bank is considering using a swap to reduce its credit exposure to this customer. which type of swap would best meet this need?

Answer 1

One of a bank lender's most important borrowers' creditworthiness is a problem. In order to lessen its credit exposure to this customer, the bank is thinking about implementing a swap. This need would be best served by a credit default swap kind of swap.

A swap is a derivative transaction in the financial industry where one party exchanges the value of an asset or cash flows with another. A company that pays a variable interest rate, for instance, might swap interest payments with another company, who would then pay the first company a fixed rate. A contract between a lender and a borrower is the standard definition of credit. In addition, the term "credit" can refer to someone's or a company's creditworthiness or credit history. A credit in accounting could result in a drop in assets, a rise in liabilities, a reduction in costs, or a gain in income.

Learn more about credit here

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