Smith Brothers Has a Floating-Rate Loan Based on the LIBOR

question 13

Multiple Choice

Smith Brothers has a floating-rate loan based on the LIBOR rate. The Three Sisters has a floating-rate loan based on the Treasury bill. The Smith Brothers would prefer a loan based on the T-bill and the Three Sisters would prefer a loan based on LIBOR, but neither have been able to obtain the loan they prefer. These two firms would most likely benefit if they entered a(n) :

• A) Forward contract on the dollar-pound exchange rate.
• B) Commodity swap.
• C) Exchange rate swap.
• D) Interest rate swap.
• E) Futures contract on the dollar-pound exchange rate.

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Definitions:

Industry Canada

A department of the Canadian government formerly responsible for economic development, innovation, and scientific research, now part of Innovation, Science and Economic Development Canada.

Department of Industry Act

Legislation that establishes and defines the powers, responsibilities, and organization of a country's Department of Industry or similar entity.

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F.O.B. (Free on Board) Contracts are commercial agreements where the seller is obligated to deliver goods on board a vessel chosen by the buyer at a specified location, with the buyer taking responsibility for the goods once they're onboard.

Title

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