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

question 37

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 Megabuks.

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

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Definitions:

Contingent

Depending on something else in the future to happen, often used to describe conditions or stipulations.

Co-occurred

Refers to events or phenomena that happen at the same time or in conjunction with each other.

Generalization Behavior

The process by which an organism makes a response to a stimulus that is similar to, but not identical to, a previously encountered stimulus.

Operant Box

An experimental apparatus used in behavioral psychology to study the learning behavior of animals, particularly through reinforcement and punishment.