An FI Has Entered a $100 Million Swap Agreement with a Counterparty.The

question 11

Multiple Choice

An FI has entered a $100 million swap agreement with a counterparty.The fixed-payment portion of the swap is similar to a government bond with maturity of 6 years and duration of 5 years.The swap payment interval is 1 year.If the relative shock to interest rates [ΔR/(1 + R) ] is a decline of 50 basis points, what will be the change in market value of the swap contract?

• A)+$2.0 million.
• B)-$2.0 million.
• C)+$2.5 million.
• D)-$2.5 million.
• E)More information is needed.

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Definitions:

Preeminence

The quality of being superior or outstanding in a particular field or context.

Acceptance Is Timely

implies that an offer has been accepted within the timeframe specified, or in a reasonable period, making a contract binding.

Accepted by Offeree

The act of an offeree agreeing to the terms of an offer, thereby creating a binding contract.

Extend an Offer

This refers to the act of presenting a proposal to enter into a contract, which may include terms of employment, purchase offers, or other agreements.