Final answer:
Option D, 'Senior management overstates assets and conceals liabilities,' represents financial statement fraud. It is a corporate crime where financial information is manipulated to mislead stakeholders. Valuation of loans in the secondary market is influenced by the borrower's credit risk and prevailing interest rates.
Step-by-step explanation:
Among the options provided, financial statement fraud is identified in option D, where it states: 'Senior management overstates assets and conceals liabilities'.
This act involves deliberate misrepresentation or omission of financial statement data to mislead users of the statements and give an incorrect picture of the company's financial health, commonly for personal gain or to influence the perception of investors, creditors, and the market. This type of fraud can result in serious legal consequences and constitutes corporate crime.
Regarding the options that involve loan valuation in the secondary market, a financial services company would likely pay less for a loan if the borrower has been late on a number of loan payments due to increased risk of default (credit risk).
They may pay less for a loan if interest rates in the economy have risen since the bank made the loan because the loan's fixed interest rate would be less attractive compared to the current higher rates available. Conversely, they might pay more for a loan if the borrower is a firm that has just declared a high level of profits, as this implies improved creditworthiness and lower credit risk.
Similarly, they would also tend to pay more if interest rates have fallen, making the loan's fixed rate more competitive in the current market. Option D