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ABC, a US-Based Corporation Enters into a Currency Basis Swap

question 7

Multiple Choice

ABC, a US-based corporation enters into a currency basis swap with XYZ, a British company, in which the initial principal amounts are $200 million and £ 100 million. That is:
-At inception, there is an initial principal exchange in which ABC pays XYZ $200 million and receives £ 100 million.
-Subsequently, at each interest payment date ABC pays XYZ the GBP-Libor rate on £ 100 million, and receives the USD-Libor rate on $200 million.
-Fnally, at maturity, a re-exchange of principals occurs in which ABC pays XYZ £ 100 million in exchange for $200 million.
Suppose the spot exchange rate is $1.55 = £ 1 at the time of entering into the swap. Assuming ABC and XYZ both have AA credit ratings at this time and can access funds at Libor flat, the value of the swap at inception to ABC is

Define and differentiate between authorized, issued, and outstanding shares.

Understand the conditions required for paying cash dividends.

Identify how treasury stock transactions impact stockholders' equity.

Analyze significant changes in stockholders' equity and their reporting.

Definitions:

Introspection

The study or scrutiny of one's own psychological and emotional states.

Actual Self

Represents an individual's perception of themselves as they are, rather than how they wish to be.

Overjustification Effect

In the absence of obvious external determinants of our behaviour, we assume that we freely choose the behaviour because we enjoy it.

BIRGing

Basking in Reflected Glory; that is, name-dropping to link yourself with desirable people or groups and thus improve other people’s impression of you.