The current exchange rate is 1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with bank B if a currency trader employed at Bank A buys 45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

A. Bank A's dollar-denominated account at B will rise by $90,000.

B.Bank B's dollar-denominated account at A will fall by $90,000.

C. Bank A's pound-denominated account at B will rise by 45,000.

D. Bank B's pound-denominated account at A will rise by 45,000.

76.

ABC International can borrow $4,000,000 at LIBOR plus a lending margin of .65 percent per annum on a three-month rollover basis from Barclays in London. Three month LIBOR is currently 5.5 percent. Suppose that over the second three-month interval LIBOR falls to 5.0 percent. How much will ABC pay in interest to Barclays over the six-month period for the Eurodollar loan?

A.

$50,000

B.

$100,000

C.

$118,000

D.

$120,000

77.

You entered in to a 3 6 forward rate agreement that obliged you to borrow $10,000,000 at 3%. Suppose at the maturity of the FRA, the correct interest rate is 3%. Clearly you are better off since you have the ability to borrow $10,000,000 for 3 months at 3% instead of 3%. What is the payoff at the maturity of the FRA?

A.

Net payment of $12,391.57 to you

B.

Net payment of $12,500 to you

C.

Net payment of $50,000 to you

D.

Net payment of $48,309.18 to you

78.

A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The reason that the bank bought the FRA was to hedge: the bank accepted a 3-month deposit and made a six-month loan. The agreement rate with the seller is 5.0%. Assume that three months from today the settlement rate is 5.25%. Who pays whom? How much? When? The actual number of days in the FRA is 90.

A.

The bank pays $3,0084.52 at the end of 3 months

B.

The bank pays $3,0084.52 at the end of 6 months

C.

The counterparty pays $3,0084.52 at the end of 3 months

D.

The counterparty pays $3,0084.52 at the end of 6 months