ARMs Allow Lenders to Pass the Default Risk on to the Borrower

question 71

True/False

ARMs allow lenders to pass the default risk on to the borrower.

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Definitions:

Contingent Asset

A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Convertible Notes

A financial instrument issued by companies that can be converted into equity, usually at the discretion of the holder or at specific future events.

Interest Expense

The cost incurred by an entity for borrowed funds, representing the price paid for the use of a lender's money or credit.

Ordinary Shares

Equity shares that represent ownership in a company and give the holder voting rights and a share in the company’s profits through dividends.