When Two Parties Agree to Exchange a Set of Interest

question 23

Multiple Choice

When two parties agree to exchange a set of interest rate cash flows based on a notional principal,this transaction is called:

• A) cross-hedging.
• B) interest rate swap.
• C) cash flow swap.
• D) fixed-for floating swap.

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Definitions:

Allowance Method

An accounting technique used to estimate and account for doubtful accounts receivable and adjust the amount of accounts receivable reported on the balance sheet.

Accounts Receivable

Money owed to a company by its customers for sales or services on credit, considered a current asset on the balance sheet.

Allowance for Doubtful Accounts

A contra-asset account used to estimate and offset the amount of receivables that may not be collected.

Uncollectible Accounts

Accounts receivable that a company does not expect to collect due to customer defaults.