Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment: Fixed rateFloating RateCompany X8%LIBOR Company Y8.8%LIBOR+0.2% Design a swap that will give financial intermediary 0.2% in total fee and appear equally attractive to X and Y
Added by Scott F.
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- Company X offers a fixed rate of 8%. - Company Y offers a floating rate of LIBOR + 0.2%. Show more…
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Companies A and B have been offered the following rates per annum on a $$\$ 20$$ million five-year loan: $$ \begin{array}{lcc} \hline & \text { Fixed rate } & \text { Floating rate } \\ \hline \text { Company A } & 5.0 \% & \text { LIBOR }+0.1 \% \\ \text { Company B } & 6.4 \% & \text { LIBOR }+0.6 \% \\ \hline \end{array} $$ Company A requires a floating-rate loan; Company $\mathrm{B}$ requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, $0.1 \%$ per annum and that will appear equally attractive to both companies.
Company $\mathrm{X}$ wishes to borrow U.S. dollars at a fixed rate of interest. Company $\mathrm{Y}$ wishes to borrow Japanese yen at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates, which have been adjusted for the impact of taxes: $$ \begin{array}{lcr} \hline & \text { Yen } & \text { Dollars } \\ \hline \text { Company X } & 5.0 \% & 9.6 \% \\ \text { Company Y } & 6.5 \% & 10.0 \% \\ \hline \end{array} $$ Design a swap that will net a bank, acting as intermediary, 50 basis points per annum. Make the swap equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the bank.
Akash M.
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