USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 148

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. Suppose that three-month LIBOR is 4.0 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 Newport.

• A) The dealer is obligated to pay Newport $125,000.
• B) The dealer is obligated to pay Newport $115,000.
• C) Newport is obligated to pay the dealer $125,000.
• D) Newport is obligated to pay the dealer $115,000.
• E) Newport is obligated to pay the dealer $105,000.

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Definitions:

Status Cues

Signals or indicators that suggest or confer social standing and position to others.

Social Interaction

The process by which individuals act and react in relation to others, forming the basis of social relationships and structures.

Activate Emotions

The process of inducing emotional responses in oneself or others, often employed in communication, marketing, or therapy.

Stereotyping

The act of making oversimplified generalizations about a group of people, ignoring individual differences and complexity.