Multiple Choice
A U.S. bank agrees to a swap of making fixed-rate interest payments of $12 million to a UK bank in exchange for floating-rate payments of LIBOR + 4 percent in British pounds for a notional amount of £100 million. The current exchange rate is $1.50/£. The interest payments will be exchanged at the end of the year at the prevailing rates.
-At the end of year 2, LIBOR rates are 6 percent and the exchange rate is $1.50/£. What is the net payment paid or received in dollars by the U.S. bank?
A) The U.S.bank paid $9 million and received $9 million for a net payment of $0 million.
B) The U.S.bank paid $9 million and received $15 million for a net receipt of $6 million.
C) The U.S.bank paid $12 million and received $9 million for a net payment of $3 million.
D) The U.S.bank paid $12 million and received $12 million for a net payment of $0 million.
E) The U.S.bank paid $12 million and received $15 million for a net receipt of $3 million.
Correct Answer:
Verified
Correct Answer:
Verified
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