24-46 Which of the Following Is the Primary Factor That

question 62

Multiple Choice

24-46 Which of the following is the primary factor that determines the fixed and floating rates set at the time an interest rate swap is initiated?

• A)Actual market rates that materialized over the life of the swap contract.
• B)London interbank offer rate.
• C)Upfront fee payments.
• D)Market's expectations of future short-term rates.
• E)Varying notional values underlying the swap.

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Definitions:

Convex

A shape or function where a line segment between any two points on its boundary or graph lies above or on the shape or graph.

Transitivity

In decision theory, the principle that if a person prefers option A to B and B to C, then they should prefer A to C.

Diminishing Marginal

A principle stating that as additional units of a variable input are added to a fixed input, the additional output produced from each new unit will eventually decline.

Indifference Curves

A graphical representation of different combinations of goods or services among which a consumer is indifferent, showing preferences and trade-offs.