Suppose That You Are a Swap Bank and You Notice

question 98

Multiple Choice

Suppose that you are a swap bank and you notice that interest rates on coupon bonds are as shown.Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR.The current spot exchange rate is $1.50 per €1.00.The size of the swap is €40 million versus $60 million. In other words,what will you be willing to pay in euro against receiving USD LIBOR?

• A)7%
• B)6%
• C)5%
• D)None of the above

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Definitions:

Non-Strategic Investments

Investments made without a long-term plan or alignment with the core goals of an investor or organization.

Short Or Long-Term

A classification that distinguishes between assets, liabilities, or goals based on the duration, typically under or over one year, respectively.

Equity Securities

Financial instruments that signify an ownership position in a publicly-traded corporation, such as stocks.

Long-Term Investments

Assets that a company intends to hold for more than one fiscal year, including stocks, bonds, real estate, and other securities.