Exhibit 23.2 Use the Information Below for the Following Problem(S)

question 48

Multiple Choice

Exhibit 23.2
Use the Information Below for the Following Problem(S)
Darden Industries has decided to borrow $25,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based will be undesirable. (The amount of Darden's first payment will be known at origination.) To reduce the company's interest rate exposure, you decide to purchase a 3 × 6 FRA whereby you pay the dealer's quoted fixed rate of 4.5% in exchange for receiving 3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of $25,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 23.2.Assuming that 3-month LIBOR is 5.00% on the rate determination day,and the contract specified settlement in advance,describe the transaction that occurs between the dealer and Darden.

• A) The dealer is obligated to pay Darden $30,864.20.
• B) The dealer is obligated to pay Darden $19,359.61.
• C) Darden is obligated to pay the dealer $19,359.61.
• D) Darden is obligated to pay the dealer $30,864.20.
• E) None of the above

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Definitions:

Natural Resources

Land, forests, minerals, water, and other things that are not made by people.

Insider Trading

The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.