Which of the Following Is True for the Party Paying

question 13

Multiple Choice

Which of the following is true for the party paying fixed in an interest rate swap? Assume no other transactions with the counterparty.

• A) There is more credit risk when the yield curve is upward sloping than when it is downward sloping
• B) There is more credit risk when the yield curve is downward sloping than when it is upward sloping
• C) The credit exposure increases when interest rates decline
• D) There is no credit exposure providing a financial institution is used as the intermediary

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Definitions:

Total Expenses

The aggregate amount of all costs incurred by a business during a specific period.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, providing a more useful tool for performance evaluation.

Employee Salaries And Wages

Refers to the total payments made to employees for the work they have done, inclusive of overtime, bonuses, and other compensations.

Flexible Budget

A budget that adjusts or flexes for changes in the volume of activity, providing a more useful tool for performance evaluation than a static budget.