A USBank Agrees to a Swap of Making Fixed-Rate Interest Payments

question 13

Multiple Choice

A U.S.bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million.The current exchange rate is $1.50/£.The interest payments will be exchanged at the end of the year at the prevailing rates. What is the nominal payment paid or received by the U.S.bank over the three year period?

• A)The U.S.bank received $2 million over the three year period.
• B)The U.S.bank received $1 million over the three year period.
• C)The U.S.bank paid $0 over the 3 year period.
• D)The U.S.bank paid $1 million over the three period.
• E)The U.S.bank paid $2 million over the three period.

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Definitions:

Dependent Variable

The variable in an experiment or study that is expected to change in response to changes in the predictor variables.

Independent Variable

In experimental and observational studies, it's the variable that is manipulated or categorized to observe its effect on the dependent variable.

Standard Error of the Estimate

A measure that indicates the accuracy with which a regression line represents the data points.

Simple Linear Regression

An analytical technique that fits a linear equation to data points to model how a dependent variable changes with one independent variable.