Suppose That You Are a Swap Bank and You Notice $\begin{array}{ll}\text { Rates } & \text { 3-year } \\\text { USD } & \$ 7 \% \\\text { Euro } & € 5 \%\end{array}$

question 52

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. $\begin{array}{ll}\text { Rates } & \text { 3-year } \\\text { USD } & \$ 7 \% \\\text { Euro } & € 5 \%\end{array}$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

• A)7 percent
• B)6 percent
• C)5 percent
• D)none of the options

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Definitions:

Evolutionary Heritage

The traits and characteristics that have been passed down through generations as a result of evolutionary processes.

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Innate or universal patterns of behavior typically observed across the human species.

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