Bank a Has a Funding Cost Of $L + 10$ Basis Points, Where

question 22

Multiple Choice

Bank A has a funding cost of $L + 10$ basis points, where $L$ is Libor. Bank B has funding cost of $L + 80$ basis points. There is a reference obligation currently yielding $L + 140$ basis points. In a "Funding Cost Arbitrage," Bank A pays B the total return on the reference obligation in exchange for a payment of $L + x$ basis points by Bank B, where:

• A) The value of \(x\) must lie between 10 and 60
• B) The value of \(x\) must lie between 10 and 80
• C) The value of \(x\) must lie between 60 and 140
• D) The value of \(x\) must lie between 80 and 140

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Definitions:

Channel Functions

Activities involved in moving goods from producers to consumers, including distribution, transportation, and retailing.

Rack Jobbers

Merchandisers who lease space within retail stores to display and sell their own products, typically involved in the distribution of books, music, or electronics.

Consignment

A sales arrangement where goods are left with a third party to sell, but ownership remains with the supplier until sold.

Merchant Wholesalers

Businesses that buy goods in large quantities from producers to resell to retailers or other businesses, but not to end consumers.