A basis swap is priced by adding a spread to the higher rate or subtracting a spread from the lower rate. This spread is found as
a. the difference between the floating rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
b. the addition of the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
c. the difference between the fixed rate on a plain vanilla swap based on one of the rates and the fixed rate on a plain vanilla swap based on the other rate.
d. the difference between the floating rate on a plain vanilla swap based on one of the rates and the floating rate on a plain vanilla swap based on the other rate.
e. none of the above correctly explain how this spread is found
Answer: C
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