Suppose ABC Investment Banker,Ltd.is quoting swap rates as follows: 7.50 - 7.85 percent annually against six-month dollar LIBOR for dollars,and 11.00 - 11.30 percent annually against six-month dollar LIBOR for British pound sterling.ABC would enter into a $/£ currency swap in which:
A) it would pay annual fixed-rate dollar payments of 7.85% in return for receiving annual fixed-rate £ payments at 11.3%.
B) it will receive annual fixed-rate dollar payments at 7.5% against paying annual fixed-rate £ payments at 11%.
C) it would pay annual fixed-rate dollar payments of 7.5% in return for receiving annual fixed-rate £ payments at 11.3%.
D) None of these.

Question

Quizplus · Accepted Answer

ABC would pay the fixed-rate dollar payments at 7.50% annually against receiving the fixed-rate £ payments at 11.30% annually according to the given swap rates. Therefore, option C is the correct choice.