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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 121

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. Assuming that three-month LIBOR is 5.6 percent on the rate determination day, and the contract specified settlement in arrears at month 6, describe the transaction that occurs between the dealer and Megabuks.

Definitions:

Sympathetic System

A part of the autonomic nervous system responsible for the body's 'fight or flight' response, regulating involuntary body functions like heart rate and blood flow.

Ganglionic Neurons

Neurons that are part of the autonomic nervous system located in ganglia, which act as relay points for transmitting signals from the central nervous system to target organs.

Terminal Ganglia

Clusters of nerve cell bodies located near or within the organs they innervate, typically in the peripheral nervous system.

Parasympathetic System

Part of the autonomic nervous system responsible for conserving energy and slowing down the body's response.