The agreement between two parties to exchange cash flows in future and the cash flows are based on underlying instruments is classified as ___________?
Correct answer: A. swaps
- A. swaps
- B. interchange
- C. exchange
- D. index
Explanation
A swap is a derivative agreement in which two parties exchange specified future cash flows based on an underlying rate, currency, or other instrument. The exchange of cash-flow streams distinguishes swaps from ordinary purchases.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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