Assume That Two Firms,one Considered a High Credit Risk (HCR)and

question 92

Multiple Choice

Assume that two firms,one considered a high credit risk (HCR) and the other a low credit risk (LCR) ,are considering an interest rate swap.Each can borrow at the following rates: $\begin{array}{llcc} \quad\quad\text { Fixed Rate } & \quad\text { Variable Rate } \\ \text { LCR } &8\%&5\%\\ \text { HCR } &12\%&7\%\\\end{array}$

An interest rate swap would be beneficial to both parties if:

• A)the LCR firm wants to borrow at the fixed rate and the HCR firm wants to borrow at the variable rate.
• B)the HCR firm wants to borrow at the fixed rate and the LCR firm wants to borrow at the variable rate.
• C)both firms want to borrow at the variable rate.
• D)both firms want to borrow at the fixed rate.
• E)an interest rate swap would be never beneficial in this situation.

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Laws enacted by the federal government to impose taxes on individuals and businesses to finance government activities.

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