Swap: United States Dollar and Rate Floating Rate

Topics: United States dollar, Japanese yen, Foreign exchange market Pages: 2 (469 words) Published: April 30, 2013
Q.1.Companies A and B have been offered the following rates per annum on a $20 million five-year loan :
Fixed rate Floating rate
Company A12.0%LIBOR + 0.1%
Company B13.4%LIBOR + 0.6%

Company A requires a floating-rate loan; company 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.

Q.2.Company X wishes to borrow U.S. dollars at a fixed rate of interest. Company 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:

YenDollars
Company X5.0%9.6%
Company Y6.5%10.0%
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.

Q.3Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

Fixed rateFloating rate
Company X8.0%LIBOR
Company Y8.8%LIBOR
Company X requires a fixed-rate investment; company Y requires a floating-rate invest ment. Design a swap that will net a bank, acting as intermediary, 0.2% per annum and will appear equally attractive to X and Y.

Q.4.Companies A and B face the following interest rates (adjusted for the differential impact of taxes):
A B
U.S. dollars (floating rate)LIBOR + 0.5%LIBOR + 1.0%
Canadian dollars (fixed rate)5.0% 6.5%

Assume that A wants to borrow U.S. dollars at a floating fate of interest and B wants to borrow Canadian dollars at a fixed rate of interest. A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is equally attractive to A and B, what rates of interest...
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