Rate-sensitive liabilities and rate-sensitive assets

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Reference no: EM131535207

1. The Bank of Toronto has negotiated a plain vanilla swap in which it will exchange fixed payments of 10 percent for floating payments equal to LIBOR plus 0.5 percent at the end of each of the next three years. In the first year, LIBOR is 8 percent; in the second year, 9 percent; in the third year, LIBOR is 7 percent. What is the total net payment the Bank of Toronto makes over the three-year period if the notional principal is $10 million?

2. Assume that the First Bank of California (FBC) has rate-sensitive liabilities and rate-sensitive assets. If FBC negotiates a rate-capped swap, its _________ payments will be capped, and it will _________ an up-front premium in exchange for the cap.

outflow; pay

inflow; pay

outflow; receive

inflow; receive

Reference no: EM131535207

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