A Currency Swap Is Most Similar in Economic Purpose to a

question 19

Multiple Choice

A currency swap is most similar in economic purpose to a

• A)basis swap
• B)parent company loan
• C)debt-equity swap
• D)parallel loan

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Definitions:

M&M Proposition I

Modigliani and Miller's principle suggesting the irrelevance of financial leverage on a company's valuation in an ideal market.

Debt-Equity Ratio

A calculation of a firm's financial leverage determined by dividing its overall liabilities by the equity of its shareholders.

Interest Tax Shield

The reduction in income taxes that results from the deductibility of interest payments from taxable income.

Capital Structure

The combination of debt and equity financing that a company uses to fund its operations and growth.