A USBank Agrees to a Swap of Making Fixed-Rate Interest Payments

question 40

Multiple Choice

A U.S.bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million.The current exchange rate is $1.50/£.The interest payments will be exchanged at the end of the year at the prevailing rates.

At the end of year 3,LIBOR rates are 6 percent and the exchange rate is $1.10/£.What is the net payment paid or received in dollars by the U.S.bank?

• A)The U.S.bank paid $12 million and received $16.5 million for a net receipt of $4.5 million.
• B)The U.S.bank paid $12 million and received $11 million for a net payment of $1 million.
• C)The U.S.bank paid $12 million and received $12 million for a net payment of $0 million.
• D)The U.S.bank paid $9 million and received $11 million for a net receipt of $2 million.

---

Definitions:

Citizenship Performance

Behaviors exhibited by employees that go beyond their job requirements, contributing positively to organizational culture and performance.

Self-Fulfilling Tendency

A prediction or expectation that causes itself to become true, simply because the prediction was made.

Attachment Styles

Patterns of behavior in relationships that are shaped by one's early interactions with caregivers and that affect one's emotional bonds in adulthood.

Significant Other

A person considered extremely important to an individual's life or well-being, often a romantic partner but can also include close friends or family members.