The Principal in an Interest Rate Swap Is

question 72

Multiple Choice

The principal in an interest rate swap is:

• A) always transferred from the originator to the counterparty of the swap.
• B) is usually held by a clearinghouse to guarantee payment.
• C) usually borrowed from a third party.
• D) is not borrowed, lent, or exchanged. It just serves as the basis for the calculation of cash flows.

Understand the challenges and controversies surrounding accounting-based incentives in executive compensation.

Understand the implications of meeting earnings benchmarks through real actions versus operational excellence.

Comprehend the role and potential drawbacks of accounting covenants in loan agreements.

Grasp the reasons for treating large, unforeseen expenses as assets for rate-making purposes.

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Definitions:

Money Supply

The complete value of all money resources in an economy during a particular time frame.

Checking Account

A bank account that allows easy access to funds, typically through checks and electronic debits, for everyday transactions.

Newly Received Loan

Funds borrowed for the first time, typically involving an agreement on repayment terms and interest rates.

Fed

The Federal Reserve System, the central banking system of the United States, which regulates banks, manages the country's money supply, and aims to ensure economic stability.