Exhibit 14-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 82

Multiple Choice

Exhibit 14-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Darden Industries has decided to borrow $25,000,000.00 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 Darden'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 4.5% in exchange for receiving 3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of $25,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 14-5. Assuming that 3-month LIBOR is 5.00% on the rate determination day, and the contract specified settlement in advance, describe the transaction that occurs between the dealer and McIntire.

• A) The dealer is obligated to pay McIntire $61,728.40.
• B) The dealer is obligated to pay McIntire $56,389.16.
• C) McIntire is obligated to pay the dealer $56,389.16.
• D) McIntire is obligated to pay the dealer $61,728.40.
• E) None of the above

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Definitions:

Gestalt Therapy

A form of psychotherapy that emphasizes personal responsibility and focuses on the individual's experience in the present moment, the therapist-client relationship, the environmental and social contexts of a person's life, and the self-regulating adjustments people make as a result of the overall situation.

Empty Chair

A therapeutic technique in psychology where a client speaks to an imaginary person or an object placed in an empty chair, used to express thoughts and feelings freely.

Meditation

A group of techniques that involve focusing attention on an object, a word, one’s breathing, or one’s body movements in an effort to block out all distractions, to enhance well-being, and to achieve an altered state of consciousness.

Integrated Self

A psychological concept referring to an individual's achievement of a unified sense of self, where various aspects of the self are harmoniously combined.