Suppose That You Are a Swap Bank and You Notice $\begin{array}{ll}\text { Rates } & \text { 3-year } \\\text { USD } & \$ 7 \% \\\text { Euro } & € 5 \%\end{array}$

Multiple Choice

Suppose that you are a swap bank and you notice that interest rates on coupon bonds are as shown.Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR.The current spot exchange rate is $1.50 per €1.00.The size of the swap is €40 million versus $60 million. $\begin{array}{ll}\text { Rates } & \text { 3-year } \\\text { USD } & \$ 7 \% \\\text { Euro } & € 5 \%\end{array}$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

A) 7 percent
B) 6 percent
C) 5 percent
D) none of the options