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Exhibit 14-6 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 92

Multiple Choice

Exhibit 14-6
USE THE FOLLOWING INFORMATION FOR THE NEXT 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% in exchange for receiving 3-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%. (Assume a notional principal of $50,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 14-6. Assuming that 3-month LIBOR is 5.6% on the rate determination day, and the contract specified settlement in arrears at month 6, describe the transaction that occurs between the dealer and Chimichango.

Definitions:

Financial Metrics

Quantitative measures used to assess the financial health, performance, and viability of a business or investment.

Balanced Scorecard

A strategy performance management tool that tracks financial and non-financial measures to give a balanced view of organizational performance.

Strategic Performance Measurement System

A framework that companies use to monitor and manage their strategies by measuring performance using financial and non-financial metrics.

Balanced Scorecard

A strategic planning and management system used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor performance against strategic goals.