The Investment Strategy of Borrowing at a Low Short-Term Interest

question 17

Multiple Choice

The investment strategy of borrowing at a low short-term interest rate and using the borrowed funds to invest at a higher long-term interest rate is called

• A) arbitrage.
• B) interest carry trade.
• C) risk structure.
• D) liquidity premium.

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Definitions:

Assets

Economic resources controlled or owned by a business, which are expected to produce benefits or value in the future.

Owner's Equity

The residual interest in the assets of a company after deducting liabilities, representing what the owners truly own.

Revenue Recognition

The accounting principle dictating the conditions under which revenue is recognized and can be reported in financial statements.

Fraud

A deliberate deception to secure unfair or unlawful gain, often financial in nature. It can involve various schemes, including embezzlement, identity theft, and forgery.