Suppose That You Are a Swap Bank and You Notice

question 83

Multiple Choice

Suppose that you are a swap bank and you notice that interest rates on zero coupon bonds are as shown.Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR. $\begin{array}{lccc}\text { Zero Rates } & 1 \text {-year } & \text { 2-year } & 3 \text {-year } \\\text { USD } & \$ 3 \% & \$ 4 \% & \$ 5 \% \\\text { Euro } & € 2 \% & € 3 \% & € 4 \%\end{array}$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

• A)5 percent
• B)4 percent
• C)3 percent
• D)2 percent

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Definitions:

Paid-in Capital

The amount of money that a company has received from shareholders in exchange for shares of stock.

Par Value

Par value, also known as nominal value, is the legally documented worth of a security's share, such as stocks or bonds, at the time of its issuance.

Stockholders

Individuals or entities that own shares in a corporation, providing them ownership interest.

Prior Period Adjustments

Adjustments made to the financial statements to correct errors or omissions in the financials of previous reporting periods.