Suppose the swap rate is 8% and the BBSW is 11% for the first quarter.Given that the amount hedged is $50 million, which of the following statements is true about the swap settlement? (Assume d/diy = 0.25)
A)The fixed rate payer pays the floating rate payer $375 000.
B)The floating rate payer pays the fixed rate payer $375 000.
C)The fixed rate payer pays the floating rate payer $4 million.
D)The floating rate payer pays the fixed rate payer $4 million.
E)The obligations of each party are zero in this quarter.

Question

Quizplus · Accepted Answer

To calculate the swap settlement, we need to determine the difference between the fixed rate and the floating rate for the quarter, and then multiply it by the notional amount of $50 million.

The BBSW rate of 11% means that the floating rate payer would pay ($50,000,000 x 11% x 0.25) = $1,375,000.

The swap rate of 8% means that the fixed rate payer would receive ($50,000,000 x 8% x 0.25) = $1,000,000.

Therefore, the difference is ($1,375,000 - $1,000,000) = $375,000.

Since the fixed rate payer receives this amount, they must pay it to the floating rate payer. Therefore, the correct answer is B) The floating rate payer pays the fixed rate payer $375,000.

Suppose the Swap Rate Is 8% and the BBSW Is