When an Interest-Rate Swap Is Used to Hedge a Financial

question 22

Multiple Choice

When an interest-rate swap is used to hedge a financial risk on a company's balance sheet, thecompany will have

• A) a short-term liability and a short-term asset with fixed values even if interest rates vary
• B) a short-term liability and a long-term asset with offsetting changes in value when interest rates vary
• C) a long-term liability and a short-term asset with fixed values even if interest rates vary
• D) a long-term liability and a long-term asset with offsetting changes in value when interest rates vary

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Definitions:

Interest Groups

Organizations that attempt to influence public policy and government decisions in favor of their members' or supporters' interests.

Monarch

A sovereign head of state, especially a king, queen, or emperor, who typically inherits the position by birth.

Republic

A form of government in which power is held by the people and their elected representatives, and which has an elected or nominated president rather than a monarch.

Referendum

A direct vote by the electorate on a specific question, proposal, or issue, often used to make decisions on legislative amendments or policy changes.