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:

Crisis Intervention Services

Services designed to provide immediate, short-term help to individuals who experience an event that generates emotional, mental, physical, and behavioral distress or problems.

Mental Illness

Disorders that affect mood, thinking, and behavior, ranging from depression to schizophrenia.

Problem-Solving Technique

A method or strategy used to find solutions to complex or difficult issues.

Critical Thinking Model

A framework used to enhance the process of evaluating information and arguments systematically, encouraging deeper understanding and problem-solving abilities.