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

question 50

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 the year, LIBOR is 4 percent and the exchange rate is $1.50/£. What is the net payment paid or received in dollars by the Canadian bank?

• A)The Canadian bank paid $12 million and received $8 million for a net payment of $4 million.
• B)The Canadian bank paid $12 million and received $10 million for a net payment of $2 million.
• C)The Canadian bank paid $12 million and received $12 million for a net receipt of $0 million.
• D)The Canadian bank paid $12 million and received $14 million for a net receipt of $2 million.
• E)The Canadian bank paid $12 million and received $16 million for a net receipt of $4 million.

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