Which of the Following Statements Is Correct

question 561

Multiple Choice

Which of the following statements is correct?

• A) Hedging a long bond position with payer's swap involves basis risk
• B) Hedging the credit risk of an asset swap package with a credit default swap has no basis risk
• C) Basis risk is a result only of maturity mismatches
• D) Basis risk is a result only of duration mismatches.

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Definitions:

Solvency

The ability of a firm to pay its debts as they come due.

Current Ratio

A financial ratio that is computed by dividing current assets by current liabilities.

Fiscal Year

A 12-month period used for accounting purposes and preparing financial statements, which may not align with the calendar year.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.