Question

Suppose a Swiss currency swap dealer, ABC Investment Bank, quotes currency swap rates as follows: 4.50% - 4.65% in Swiss francs (SF) annually against 6-month $ LIBOR. This swap implies:

a. none of the other answers

b. ABC will receive annual fixed Swiss franc payments of 4.50% and pay 6-month $ LIBOR

c. ABC will pay annual fixed payments of 4.50% in US $ and receive 6-month $ LIBOR

d. ABC will pay annual fixed Swiss franc payments of 4.65% and receive 6-month $ LIBOR

Answer 1

The swap implies that ABC will pay fixed rate of 4.5% because that's the bid rate and will receive 6 month $LIBOR. So the bank will pay fixed rate and receive floating rate because it may have assumption that LIBOR will rise.

So the answer is option (c)

Answer 2

The Swap Implies that ABC will pay an annual fixed Swiss franc payment of 4.65% and receive 6- months $ LIBOR.

Explanation:

In this case, the Swap dealer is the buyer of the Fixed-rate, therefore he may bid for a 4.50% rate but it also depends on the asking rate i.e. 4.65% at which the seller is willing to sell. The buyer will always see the Ask price and the seller will see the Bid price. 

Therefore option d is the correct option.