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

question 19

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 advance,describe the transaction that occurs between the dealer and Chimichango.

• A) The dealer is obligated to pay Chimichango $38,215.00
• B) The dealer is obligated to pay Chimichango $30,818.54.
• C) Chimichango is obligated to pay the dealer $31,818.54.
• D) Chimichango is obligated to pay the dealer $38,215.00
• E) None of the above.

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Definitions:

Net Income

The amount of profit left over after all operating expenses, taxes, and interest payments have been deducted from total revenue.

Dividend

A portion of a company's earnings distributed to shareholders, usually in the form of cash or additional stock.

Treasury Stock

Shares that were once part of the outstanding shares but were bought back by the issuing company.

Common Stock

A type of equity security that represents ownership in a corporation, providing voting rights and a dividend entitlement.