Exhibit 21 -Refer to Exhibit 21

question 71

Multiple Choice

Exhibit 21.3
Use the Information Below for the Following Problem(S)
As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a quarterly interest expense based on the prevailing level of LIBOR at the beginning of each quarter. As is the bank's convention on all such loans, the amount of the interest payment would then be paid at the end of the quarterly cycle when the new rate for the next cycle is determined. You observe the following LIBOR yield curve in the cash market:
$\begin{array}{ll}90 \text {-day LIBOR } & 4.70 \% \\180 \text {-day LIBOR } & 4.85 \% \\\text { 270-day LIBOR } & 5.10 \% \\\text { 360-day LIBOR } & 5.40 \%\end{array}$
-Refer to Exhibit 21.3.If the bank wanted to hedge its exposure to falling LIBOR on this loan commitment,describe the sequence of transactions in the futures markets it could undertake.

• A) Buy 3 Eurodollar futures contracts that expire at the end of the first quarter.
• B) Buy 3 Eurodollar futures contracts that expire at the end of the first quarter, 3 that expire at the end of the second quarter, and 3 that expire at the end of the third quarter.
• C) Sell 3 Eurodollar futures contracts that expire at the end of the year.
• D) Sell one Eurodollar futures contract that expires at the end of the first quarter, one that expires at the end of the second quarter, and one that expires at the end of the third quarter.
• E) Buy 3 Eurodollar futures contracts that expire at the end of the year.

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Definitions:

Treasury Stock

A corporation’s own stock that has been issued and subsequently reacquired from shareholders by the corporation but not retired.

Investing Activity

Transactions involving the purchase or sale of long-term assets and investments, reflected in the cash flow statement of a company.

Operating Activities

Activities that relate to the primary operations of a company, such as selling goods and services, which generate revenue and expenses.

Fixed Assets

Long-term tangible assets used in the operations of a business, not expected to be converted to cash within a year.