Certified Wound Ostomy Nurse (CWON) Practice Test

Why should treasury set counterparty exposure limits even for highly rated banks?

Exposure limits guarantee a bank will never fail Ratings can change and concentration in one institution can create outsized loss or liquidity risk Limits are required only for equity investments Highly rated banks cannot accept deposits

Correct Answer:

Ratings can change and concentration in one institution can create outsized loss or liquidity risk

Explanation:

Counterparty limits reduce concentration and recognize that credit quality can deteriorate. They are one element of ongoing exposure and liquidity risk management.

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