Use the Following Information to Answer Questions 22 Through 24

question 13

Multiple Choice

Use the following information to answer questions 22 through 24.On October 1,the one-month LIBOR rate is 4.50 percent and the two month LIBOR rate is 5.00 percent.The November Fed funds futures is quoted at 94.50.The contract size is $5,000,000.
-All of the following are limitations to Fed funds futures arbitrage,except

• A)Fed funds rates are determined by Federal Reserve Bank policy
• B)basis risk between Fed funds and LIBOR
• C)repo rate is variable for the trading horizon
• D)settlement is based on average in delivery month
• E)transaction costs

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Definitions:

Time Value

Time value refers to the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Money

A medium of exchange used to facilitate transactions for goods and services.

Net Present Value

A method used to evaluate an investment's profitability by calculating the present values of all cash inflows and outflows.

Delay

The act or instance of postponing or hindering a process, decision, or action.