A Canadian Bank Agrees to a Swap of Making Fixed-Rate

question 6

Multiple Choice

A Canadian bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million. The current exchange rate is $1.50/£. The interest payments will be exchanged at the end of the year at the prevailing rates. At the end of year 3, LIBOR rates are 6 percent and the exchange rate is $1.10/£. What is the net payment paid or received in dollars by the Canadian bank?

• A)The Canadian bank paid $12 million and received $16.5 million for a net receipt of $4.5 million.
• B)The Canadian bank paid $12 million and received $11 million for a net payment of $1 million.
• C)The Canadian bank paid $12 million and received $12 million for a net payment of $0 million.
• D)The Canadian bank paid $9 million and received $11 million for a net receipt of $2 million.
• E)The Canadian bank paid $9 million and received $12 million for a net receipt of $3 million.

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Definitions:

Digest

The process of breaking down food into smaller components that can be absorbed by the body.

Humans

The species Homo sapiens, characterized by bipedalism, high manual dexterity, and advanced cognitive abilities leading to the development of complex tools and society.

Cellulose

A complex carbohydrate that forms the primary structural component of plant cell walls.

Abnormally Folded

Refers to proteins that have not achieved their proper three-dimensional structure, often leading to diseases.