Suppose That You Are a Swap Bank and You Notice

question 76

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. $$\begin{array} { | c | l | } \hline \text { Rates } & 3 \text {-year } \\\hline \text { USD } & \$ 7 \% \\\hline \text { euro } & € 5 \% \\\hline\end{array}$$ 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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