USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 24

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
TexMex Corporation has decided to borrow $50,000,000 for six months in two three-month issues. The corporation is concerned that interest rates will rise over the next three months. Thus, the corporation purchases a 3 * 6 FRA whereby the corporation pays the dealer's quoted fixed rate of 3.5 percent in exchange for receiving three-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from Newport Inc. at its bid rate of 3 percent. The notional principal is $50,000,000 and that there are 60 days between month 3 and month 6.
-Refer to Exhibit 15.18. How much compensation does the dealer receive for transaction costs, credit risk, and other costs associated with matching the FRAs?

• A) $42,700
• B) $62,500
• C) $82,000
• D) $96,300
• E) $0

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Definitions:

Evolutionary Principles

The fundamental concepts underlying the theory of evolution, including natural selection, adaptation, and the survival of the fittest.

Aphasia

A disorder caused by damage to parts of the brain responsible for language, affecting speaking, reading, writing, or understanding language.

Prefrontal Cortex

The front part of the frontal lobes of the brain, involved in complex cognitive behavior, personality expression, decision making, and moderating social behavior.

Executive Functioning

A set of cognitive processes including working memory, flexible thinking, and self-control, that are necessary for managing oneself and one's resources to achieve a goal.