Which ofthe following statements regarding counterparty credit risk are correct?
1. Expected positive exposure is the highest expected exposure over a specified interval.
II. Wrong-way exposures are positively correlated with the counterparty's credit quality.
III. Credit triggers are early settlement agreements that require counterparties to settle and terminate trades if the credit rating of a party falls below a specified level.
IV. Right-way exposures are negatively correlated with the counterparty's credit quality.
V. Cross-product netting is a provision that allows counterparties to net payments across different products.
V1. Collateral agreements require that specified amounts of liabilities be transferred to counterparty if exposures excecd a specified threshold.
A. III and V only.
B. I, III, and V.
C. I, II, and IV.
D. III, V, and VI.
Answer:A
Credit triggers are early settlement agreements that require counterparties to settle and terminate trades if the credit rating of a party falls below a specified level. Cross-product netting is a provision that allows counterparties to net payments across different products. Expected positive exposure is the average expected exposure over a specified interval. Wrong-way exposures are negatively correlated with the counterparty's credit quality Right-way exposures are positively correlated with the counterparty 's credit quality. Collateral agreements require that specified amounts of assets be transferred to a counterparty if exposures exceed a specified threshold.