A Firm Has Borrowed $1 Million and Assigned Its Receivables

question 29

Multiple Choice

A firm has borrowed $1 million and assigned its receivables to the lender. Because of defaults, the receivables prove insufficient to cover the debt. In this case, the:

• A) lender bears the risk of default.
• B) firm bears the risk of default.
• C) default risk is shared between lender and firm.
• D)insurance carrier will bear the risk.

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Definitions:

Unrealised Profit

Profit that has been made on paper through an investment but has not yet been cashed in by selling the asset.

Upstream

In a supply chain context, refers to processes or activities that occur at the beginning of the production process or closer to the raw materials stage.

Downstream

Refers to the refining of petroleum crude oil and the processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from crude oil and natural gas.

Unrealised Profit

Profit that has been generated on paper through an increase in the value of an asset but has not yet been realized through a sale.