Assume That Instead of Investing in Euro Bonds at a Fixed

question 16

Multiple Choice

Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent, the FI invests them in variable rates of LIBOR + 1.5 percent, reset every six months. The current LIBOR rate is 5 percent. Assume both interest and principal will be reinvested in six months. Assume the exchange rate remains at €1.75/$ at the end of the year. What should be the LIBOR rates in six months in order for the bank to earn a 1 percent spread?

• A)5.25 percent.
• B)5.48 percent.
• C)5.76 percent.
• D)5.86 percent.
• E)5.94 percent.

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Definitions:

Self-Protection

Behaviors or mechanisms employed by individuals to defend themselves against perceived threats to their well-being or integrity.

Actualization

The realization or fulfillment of one's talents and potentialities, often considered to be a drive or need present in everyone.

Self-Preservation

The instinct to protect one's self from harm or destruction, a fundamental aspect of an individual's behavior and decision-making.

Perseveration

The persistent repetition of a particular response, such as a word, phrase, or gesture, regardless of the absence or cessation of a stimulus.