Suppose That You Are a Swap Bank and You Notice

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. $$\begin{array} { | c | l | } \hline \text { Rates } & 3 \text {-year } \\\hline \text { USD } & \$ 7 \% \\\hline \text { euro } & € 5 \% \\\hline\end{array}$$ In other words,what will you be willing to pay in euro against receiving USD LIBOR?

A) 7%
B) 6%
C) 5%
D) None of the above