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

question 108

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 advance, describe the transaction that occurs between the dealer and Chimichango.

• A) The dealer is obligated to pay Chimichango $38,215.00
• B) The dealer is obligated to pay Chimichango $30,818.54.
• C) Chimichango is obligated to pay the dealer $31,818.54.
• D) Chimichango is obligated to pay the dealer $38,215.00
• E) None of the above.

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Definitions:

Action Potentials

Rapid and temporary changes in the electrical membrane potential of a cell, allowing for the transmission of nerve impulses along neurons.

Golgi Tendon Organs

Sensory receptors located at the junction of tendons and muscles, sensitive to changes in muscle tension.

Inhibitory Neuron

Neuron that produces IPSPs and has an inhibitory influence.

Alpha Motor Neurons

Neurons that innervate skeletal muscle fibers, playing a critical role in the initiation of muscle contraction.