Which of the Following Is True About the Notional Amount

question 3

Multiple Choice

Which of the following is true about the notional amount in interest rate swaps?

• A)It represents the size of the principal for interest calculation on settlement.
• B)It is the amount placed with brokers as security against default on interest payment.
• C)It is the amount transferred when the contract is initiated.
• D)It is the total interest paid when the contract is initiated.

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Definitions:

Rent Seeker

An individual or entity that seeks to increase their share of existing wealth without creating new wealth, often through manipulation of the economic environment.

Public Choice Theory

A framework that analyzes how public decisions are made, focusing on the behavior and interests of voters, politicians, and bureaucrats.

Excess Burden

The cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium, often due to taxes or monopolies.

Social Cost

The total cost to society as a result of an action or activity, including both private costs incurred by individuals and external costs affecting others.