Homework Clinic

Social Science Clinic => Business => Topic started by: agstelzer01 on May 9, 2022

Title: Which of the following is the basic premise of a derivative?
Post by: agstelzer01 on May 9, 2022

Question 1

Which of the following is a source of long-term debt financing?
◦ Corporate bond
◦ Trade credit
◦ Credit card
◦ Unsecured loan
◦ Commercial paper

Question 2

Which of the following is the basic premise of a derivative?
◦ Limiting the value of an asset
◦ Transferring risk from one party to another
◦ Linking shares of stock to governmental bonds
◦ Minimizing the risk for all parties involved
◦ Maximizing the dividend payout on equities

Title: Which of the following is the basic premise of a derivative?
Post by: Tester on May 9, 2022

Answer 1

Corporate bond

Corporate bond is an example of a long-term debt financing. Sources such as trade credit, credit card, unsecured loans, and commercial paper are examples of short-term debt financing.

Answer 2

Transferring risk from one party to another

The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.