Letters of credit, Guarantees, Forward Contracts etc., come under which one of the following?

The correct answer is: D. Off-balance sheet items of a bank

Letters of credit, guarantees, and forward contracts are all examples of off-balance sheet items. These are financial instruments that do not appear on a bank’s balance sheet, but they still have a financial impact on the bank.

Off-balance sheet items can be used to manage risk, but they can also create risks for banks. For example, if a bank issues a letter of credit, it is guaranteeing that the buyer will pay the seller. If the buyer defaults on the loan, the bank will have to pay the seller.

Banks must carefully manage their off-balance sheet items to ensure that they do not create too much risk.

Here is a brief explanation of each option:

• Liabilities of a bank are the debts that a bank owes to its creditors. Examples of liabilities include deposits, loans, and bonds.
• Assets of a bank are the things that a bank owns that have value. Examples of assets include cash, loans, and securities.
• Foreign exchange items of a bank are the bank’s assets and liabilities that are denominated in foreign currencies.
• Off-balance sheet items of a bank are financial instruments that do not appear on a bank’s balance sheet, but they still have a financial impact on the bank.