A Basis Swap Is Priced by Adding a Spread to the Higher

question 21

Multiple Choice

A basis swap is priced by adding a spread to the higher rate or subtracting a spread from the lower rate.This spread is found as

• A)the difference between the floating rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
• B)the addition of the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
• C)the difference between the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
• D)the difference between the floating rate on a plain vanilla swap based on one of the rates and the floating rate on a plain vanilla swap based on the other rate.
• E)none of the above correctly explain how this spread is found

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Definitions:

Gene Expressed

The process by which the information encoded in a gene is used to direct the assembly of a specific protein molecule or to produce RNA molecules.

Cleavage

In animal development, stage during which repeated mitotic divisions produce a blastula.

Blastula

An early stage in embryonic development that consists of a spherical layer of cells (blastomeres) surrounding a fluid-filled cavity.

Oviduct

Duct between an ovary and the uterus.