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1. A swap bank makes the following quotes for 5-year swaps and AAA-rated firms:?,USD,Bid – 5%,Ask – 5.2%,EURO,Bid – 7%,Ask- 7.2%,,A.The bank stands ready to pay $5.2% against receiving dollar LIBOR on 5-year loans.,?B. The bank stands ready to receive €7% against receiving dollar LIBOR on 5-year loans.,?C. The bank stands ready to receive €7% against receiving dollar LIBOR on 5-year loans.?,D. None of the above,,2. Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below:,COMPANY X ,Fixed- Rate Borrowing Cost – 10%,Floating -Rate Borrowing Cost – LIBOR,COMPANY Y ,Fixed- Rate Borrowing Cost – 12%,Floating -Rate Borrowing Cost – LIBOR + 1.5%, ,A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR – 0.15%; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%. ??What is the value of this swap to company X? ??A. Company X will lose money on the deal.,?B. Company X will save 5 basis points per year on $10,000,000 = $25,000 per year.?,C. Company X will only break even on the deal?,D. Company X will save 25 basis points per year on $10,000,000 = $5,000 per year,?E. None of the above,

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