Suppose that Dummy Ltd. can invest $100mil long-term at a return of 8% p.a. and Intelligent Ltd. can invest $100mil short-term at a return equal to the 6-month LIBOR rate plus a spread of 100 bps. Both companies agree to enter into an interest rate swap agreement whereby Dummy Ltd. receives the LĪBOR rate plus 50 bps. from Intelligent Ltd., and Intelligent Ltd. received 8.5% p.a. fixed from Dummy Ltd. What is the net return to each company? A.Net return to Dummy Ltd. = LIBOR rate + 100 bps. Net return to Intelligent Ltd. = 9% р.а. B. Net return to Dummy Ltd. = 9% p.a. Net return to Intelligent Ltd. = LIBOR rate. C.Net return to Dummy Ltd. = LIBOR rate. Net return to Intelligent Ltd. = 9% p.a D.Net return to Dummy Ltd. = LIBOR rate. Net return to Intelligent Ltd. = 8% p.a. %3D %3D %3D

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.