Banking · Credit Risk Management
In the assessment of counterparty credit risk (CCR), the term 'Wrong-Way Risk' occurs when:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The market value of the collateral provided by the counterparty exceeds the current exposure.
- 2A bank fails to collect the required initial margin from a non-financial counterparty.
- 3The exposure to a counterparty is positively correlated with the probability of default of that counterparty.✓
- 4The exposure to a counterparty decreases as the probability of default of that counterparty increases.
Correct answer
The exposure to a counterparty is positively correlated with the probability of default of that counterparty.
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