A Bank Enters into a 3-Year Swap with Company X

question 4

Multiple Choice

A bank enters into a 3-year swap with company X where it pays LIBOR and receives 3.00%.It enters into an offsetting swap with company Y where is receives LIBOR and pays 2.95%.Which of the following is true:

• A)If company X defaults, the swap with company Y is null and void
• B)If company X defaults, the bank will be able to replace company X at no cost
• C)If company X defaults, the swap with company Y continues
• D)The bank's bid-offer spread is 0.5 basis points