Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent. The means
A)the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR.
B)the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.
C)if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.
D)none of the above

Question

Quizplus · Accepted Answer

The swap bank will pay 8.50% and receive 8.60%, resulting in a profit of 10 basis points if both legs are matched.

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