Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent in dollars and 6.60-6.80 percent in euro against six-month dollar LIBOR. The means
A)the swap bank will enter into a currency swap in which it would pay semiannual fixed-rate dollar payments of 8.50 percent against receiving semiannual fixed-rate euro payments of 6.80.
B)the swap bank will enter into a currency swap in which it would pay semiannual fixed-rate euro payments of 6.60 percent against receiving semiannual fixed-rate dollar payments of 8.60.
C)both a and b
D)none of the above

Question

Quizplus · Accepted Answer

The swap bank offers a bid-ask spread. It will pay the lower rate in each currency (8.50% in dollars and 6.60% in euros) and receive the higher rate (8.60% in dollars and 6.80% in euros).

Suppose the Quote for a Five-Year Swap with Semiannual Payments