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Old 07-14-2018, 11:44 PM
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Eddie Smith
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Join Date: May 2003
College: UGA
Posts: 9,427
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Yes, you would think it would be based solely on the way the book presents things, but as you noted, they do not elaborate at all -- certainly not enough for you to be able to explain the difference in an exam question solution.

The authors seem to call out FW mod-co more because it zeros out all cash at inception (i.e. not even the EA is being paid in cash). Therefore FW mod-co would be even more likely to worry a regulator.

When people ask me about this nuance in Tiller Ch. 7, I always recommend going verbatim with what the book says -- i.e. don't try to get too cute. Just recite what the book says for FW mod-co (which is not a lot!)

In reality, a regulator would look at the facts of each specific arrangement when seeing if the criteria in the Model Reg are satisfied.
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Last edited by E; 07-15-2018 at 07:49 PM..
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