Suppose the Quote for a Five-Year Swap with Semiannual Payments

question 31

Multiple Choice

Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent.This means

• A)the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR.
• B)the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.
• C)if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.
• D)none of the above

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Definitions:

Overlapping Demand

A situation in which consumers with various preferences and needs cause markets for different products or services to intersect.

Iron Ore

A naturally occurring mineral from which iron (Fe) is extracted for industrial use.

International Product Life Cycle

A theory that describes how a product matures and declines as it moves through different stages globally, from introduction to decline.

Mature Phase

The stage in a product, business, or industry lifecycle where growth stabilizes and is no longer rapid.