What are the main differences between ARMs and FRMs loans? You need to highlight the differences in terms of allocation of risk between borrowers and lenders.
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- What is the difference between interest rate risk and default risk? How do combinations of terms in ARMs affect the allocation of risk between borrowers and lenders?How to define credit risk and how to limit that risk.From the standpoint of a borrower, is long-term or short-term credit riskier? Explain.
- Counterparty credit risk is a function of the probability of default, exposure at default, and loss given default. Assuming that the individual exposure at default with a counterparty is fixed, which of the following statements is correct? A. The probability of default can be mitigated by collateral, and exposure at default can be mitigated by netting. B. The probability of default can be mitigated by netting, and exposure at default can be mitigated by collateral. C. Loss given default can be mitigated by collateral, and exposure at default can be mitigated by netting. D. Loss given default can be mitigated by netting, and exposure at default can be mitigated by collateral.What are the main risks that credit ratings reflect? Do we need creditratings? What are the parameters and risks that credit risk ratings do notincorporate and investors need to be aware of?
