In a Perfectly Matched Hedge of Fixed-Rate Debt Using an Interest

question 8

Multiple Choice

In a perfectly matched hedge of fixed-rate debt using an interest rate swap, the effect of a change in fair value of the derivative on the income statement

• A)is always a gain
• B)may be a gain or a loss
• C)is zero
• D)is always a loss

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Definitions:

Compute

To calculate or determine by mathematical means, often referring to the use of computers to process data or solve problems.

Manufacturing Costs

The total expenses directly involved in producing goods, including labor, materials, and overhead costs.

Variable Overhead

Costs of production that fluctuate with the level of output, including items like utilities or indirect materials.

Fixed Overhead

The total of all overhead costs that do not change in response to activity levels in the short term, such as rent and salaries.