41. After conducting a rate-sensitive analysis, a bank finds itself with the followingamounts of rate-sensitive assets and liabilities (RSAS and RSL) and fixed-rate assetsand liabilities (FRAs and FRLs); the rate of return and cost rates on the accounts arealso given:AssetsRSAS @ 4.25%FRAS @ 5.15%NEATotalAmount(Million $)S 322S 700S 120$1,142Liabilities& EquityRSLS @ 3.11%FRLS @ 4.95%EquityTotalIf the bank wishes to set up a swap to totally hedge the interest rate risk, the bankshouldA. pay a variable rate of interest and receive a fixed rate ofinterest.B. pay a fixed rate of interest and receive a variable rate ofinterest.Amount(Million $)S 200$ 800S 142$1,142C. pay a variable rate of interest and receive a variable rateof interest.D. pay a fixed rate of interest and receive a fixed rate ofinterest.

Let us calculate the difference between what the bank pays and receives with its existing balance…

If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should A. pay a variable rate of interest and receive a fixed rate of interest. B. pay a fixed rate of interest and receive a variable rate of interest. C. pay a variable rate of interest and receive a variable rate of interest. D. pay a fixed rate of interest and receive a fixed rate of interest.

If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should A. pay a variable rate of interest and receive a fixed rate of interest. B. pay a fixed rate of interest and receive a variable rate of interest. C. pay a variable rate of interest and receive a variable rate of interest. D. pay a fixed rate of interest and receive a fixed rate of interest.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 3BIC

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