Which of the Following Is an Example in Which a Firm

question 19

Multiple Choice

Which of the following is an example in which a firm might be indifferent between liability and risk management choices?

• A)Taking a long position in the futures contract,a long position in a call option and a short position in the underlying asset
• B)Taking a long position in the futures contract and a short position in the underlying asset
• C)Borrowing in floating rates,enter into a floating-to-fixed interest swap and lending in floating rates
• D)Borrowing foreign currency and swapping the foreign currency debt for a local currency obligation

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Definitions:

Corporations

Businesses that are legally recognized as separate entities from their owners, having their rights and liabilities.

Single Taxation

A tax system where income is taxed only once, typically referring to how corporate profits are taxed at either the corporate or shareholder level but not both.

Mutual Agency

A principle in partnerships where each partner has the power to bind the entire partnership to a contract or agreement.

Limited Liability

A principle where a company's shareholders are legally responsible for its debts only to the extent of the amount of capital they invested.