Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent in dollar against dollar LIBOR (London Interbank Offered Rate) flat. It means the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR O The swap bank stands ready to pay 8.60 percent against receiving dollar LIBOR on five-year loans the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR O if the swap bank is successful in getting counterparties to both legs of the swap at these prices, the bank will have an annual profit of ten basis points

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose the quote for a five-year swap with semiannual
payments is 8.50-8.60 percent in dollar against dollar LIBOR
(London Interbank Offered Rate) flat. It means
O the swap bank will pay semiannual fixed-rate dollar payments of
8.60 percent against receiving six-month dollar LIBOR
O The swap bank stands ready to pay 8.60 percent against receiving
dollar LIBOR on five-year loans
the swap bank will receive semiannual fixed-rate dollar payments
of 8.50 percent against paying six-month dollar LIBOR
O if the swap bank is successful in getting counterparties to both
legs of the swap at these prices, the bank will have an annual
profit of ten basis points
Transcribed Image Text:Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent in dollar against dollar LIBOR (London Interbank Offered Rate) flat. It means O the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR O The swap bank stands ready to pay 8.60 percent against receiving dollar LIBOR on five-year loans the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR O if the swap bank is successful in getting counterparties to both legs of the swap at these prices, the bank will have an annual profit of ten basis points
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