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make to each otner H Princeton Bank and the XYZ Manufacturing Corp. enter into the following five-year 8 swap with a notional
13. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement six months from now, You k
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Answer #1

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Question 8

a) Interest rate swap, since the 2 parties are swapping interest rates. One is paying a fixed rate of 6% and the other one is paying a floating interest rate, based on LIBOR (benchmark)

b) The notional amount here is $100 million.

- Amount paid by Princeton Bank (6% x $100 million) = $6 million

- Amount paid by XYZ Manufacturing Corp. - LIBOR rate - (3% x $100 million) = $3 million

c) In this case also, it would be an interest rate swap. The only difference is that the reference rate would now be based on one year treasury security.

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