Exhibit 23.3 Use the Information Below for the Following Problem(S)

question 49

Multiple Choice

Exhibit 23.3
Use the Information Below for the Following Problem(S)
Chimichango Industries has decided to borrow $50,000,000.00 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 Chimichango'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 5.91% in exchange for receiving 3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from Megabuks Industries at its bid rate of 5.85%. (Assume a notional principal of $50,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 23.3.Assuming that 3-month LIBOR is 5.6% on the rate determination day,and the contract specified settlement in arrears at month 6,describe the transaction that occurs between the dealer and Chimichango.

• A) The dealer is obligated to pay Chimichango $38,750.
• B) The dealer is obligated to pay Chimichango $31,250.
• C) Chimichango is obligated to pay the dealer $38,750.
• D) Chimichango is obligated to pay the dealer $31,250.
• E) None of the above.

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Definitions:

Inelastic Demand

This economic concept describes a situation where the demand for a product does not significantly change with the price change.

Contribution Margin

A financial metric that represents the amount of revenue from sales that exceeds variable costs, used to cover fixed expenses and generate profit.

Unit Variable Cost

The cost associated with producing one additional unit of product, which includes labor, materials, and other variable expenses.

Total Revenue

The total amount of income generated by the sales of goods or services associated with a company's primary operations.