Final answer:
The term referring to the liquidation of financial obligations through regular payments over time is an Installment sale. This concept is different from an adjustable-rate mortgage (ARM), which is a variable interest rate loan typically used for home purchases. Option B is correct.
Step-by-step explanation:
The correct answer to the question “Liquidation of a financial obligation on an installment basis; also, recovery over a period of cost or value” is Installment sale. An installment sale involves payments being made in regular intervals over time until the total debt is paid off. This method is commonly used for the transfer of high-priced items whereby the buyer makes instalment payments over a period rather than paying the full cost upfront.
An adjustable-rate mortgage (ARM) is a loan used to purchase a home where the interest rate varies with market interest rates. This means that the monthly payments can fluctuate over the term of the loan, depending on the current market rates. This financial product saw widespread use leading up to the Great Recession, especially among subprime borrowers who found themselves unable to afford the increased payments after introductory rates expired.
From a bank's perspective, a mortgage loan is an asset, as it represents a legal obligation for the borrower to make regular payments over time. These loans can be measured in value at present by estimating what another party in the market is willing to pay for it. Hence, loans are sold in the primary loan market by financial institutions to other banks or financial institutions, which then operate in the secondary loan market, where these loans are bought and sold.