USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 36

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Chimichango Industries has decided to borrow $50,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based will be undesirable. (The amount of Chimichango's first payment will be known at origination.) To reduce the company's interest rate exposure, you decide to purchase a 3 * 6 FRA whereby you pay the dealer's quoted fixed rate of 5.91 percent in exchange for receiving three-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from Megabuks Industries at its bid rate of 5.85 percent. (Assume a notional principal of $50,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 15.16. How much compensation does the dealer receive for transaction costs, credit risk, and other costs associated with matching the FRAs?

• A) $30,000
• B) $31,250
• C) $7,500
• D) $5,000
• E) $0

Recognize investment constraints and how they affect portfolio management.

Understand the concept of liquidity and its importance in investment decision-making.

Comprehend strategies for achieving investment objectives within specified risk tolerances and constraints.

Recognize the importance of considering tax implications in investment decisions.

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Definitions:

Proper Ergonomics

The science of designing workplaces, products, and systems to fit the people who use them, aiming to increase efficiency and reduce discomfort or risk of injury.

Upper Arms

refers to the portion of the arm between the shoulder and the elbow, containing muscles like the biceps and triceps.

Extended Outward

Stretched or spread out from the central point or core, often describing the physical expansion of objects, limbs, or structures.

Patient's Chart

A comprehensive medical record containing a patient’s personal identification, medical history, treatment notes, and other health information.