An Entity Holding Both Financial Assets and Liabilities Is Allowed

question 20

Multiple Choice

An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as: I the entity holds a net short position
II the entity holds a net long position
III the entity has a documented risk management strategy
IV the entity manages the group of net financial assets and liabilities on a net exposure basis

• A) I and II.
• B) I and III.
• C) II and IV.
• D) III and IV.

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Definitions:

Financing Activities

Transactions and events where a business raises capital or repays funds to finance its operations and investments, typically involving debt, equity, and dividend payments.

Treasury Stock

Shares that were once part of the outstanding shares and have been subsequently reacquired by the issuing company and held in its own treasury.

Net Cash Flow

The difference between a company's cash inflows and cash outflows for a given period.

Investing Activities

Transactions and events that relate to the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.