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:

Positive Trait

An enduring quality in a person that is regarded as beneficial or leads to positive outcomes.

Gratitude

Recognizing and concentrating on the good things in one’s life and being thankful for them.

Administers Rewards

The act of providing benefits or recognitions to individuals as a form of reinforcement or an incentive for desired behaviors.

Fairness

The quality of making judgments that are free from discrimination or bias, and uphold the principles of equity and justice.