Which of the Following Statements Correctly Describes the Fundamental Principle

question 5

Multiple Choice

Which of the following statements correctly describes the fundamental principle of swaps?

• A) The parties of the swap each have a comparative advantage in different markets
• B) One party may have excess cash while the other party has insufficient cash
• C) The parties face the same rates in the same markets, but they have different objectives regarding their payback period
• D) One party has an advantage over the other party in all markets and is willing to share that advantage

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Definitions:

Cost Method

An accounting method used to value investments, where the investment is recorded at cost and adjustments are made for dividends received or additional investments made.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee but not control those policies.

Cost Method

An accounting method used to value an investment, based on the cost to acquire the asset, without recognizing post-purchase market changes.

Dividends

Payments made by a corporation to its shareholder members, usually derived from profits.