Explore BrainMass
Share

Parity Relationships and Arbitrage

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

6. Round Rock National Bank lent $1,000,000 to Block Watne Homes, with very substantial
collateral, at a floating rate pegged at 2% above the T-Bill rate. The Bank borrowed
$1,000,000 in Eurodollars from HSBC Bank in England, at 1% over LIBOR (London
Interbank Offered Rate). Round Rock National's correspondent, Citicorp, offered to
arrange a swap with $1,000,000 principal that would allow Round Rock to receive interest
at 1% over LIBOR and pay at 1% over T-bill. Is the swap attractive to Round Rock
National?

© BrainMass Inc. brainmass.com September 25, 2018, 5:09 am ad1c9bdddf - https://brainmass.com/business/arbitrage-pricing-theory/parity-relationships-and-arbitrage-170873

Solution Summary

This posting provides the solution to the student's question.

$2.19