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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They're

A contraction of "they are," used to refer to two or more people, animals, or things.

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Characterized by vulgar or pretentious display; designed to impress or attract notice.