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Parity Relationships and Arbitrage

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?

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