Interest Trades Essay

International Financial Administration

Review on Trades, Solution

1 . The term interest rate exchange

A. refers to a " single-currency interest rate swap" shortened to " interest rate swap" M. involves " counterparties" who have make a contractual contract to exchange money flows at periodic intervals C. may be " fixed-for-floating rate" or perhaps " fixed-for-fixed rate" D. All of the above

2 . Suppose the quotation for a five-year swap with semiannual repayments is eight. 50—8. sixty percent. The means: A. The exchange bank will pay semiannual fixed-rate dollar repayments of almost 8. 50 percent against receiving six-month dollar LIBOR. B. The swap traditional bank will receive semiannual fixed-rate dollars payments of 8. sixty percent against paying six-month dollar LIBOR. C. a) and b)

D. none of the previously mentioned

3. Company X desires to borrow $10,50, 000, 500 floating to get 5 years; company Sumado a wants to get $10, 000, 000 fixed for 5 years. Their very own external asking for opportunities will be shown listed below:

A swap lender proposes this interest simply swap: X will pay the swap bank annual repayments on $12, 000, 1000 with the discount rate of LIBOR - 0. 15%; in exchange the swap financial institution will pay to company Times interest payments on $10, 000, 000 by a fixed rate of 9. 90%. What is the value of this kind of swap to company X?

A. Company Back button will lose money on the deal.

B. Business X helps you to save 25 basis points per year on $10, 000, 1000 = $25, 000 per year. C. Organization X will simply break even around the deal

Deb. Company Times will save your five basis factors per year in $10, 1000, 000 sama dengan $5, 500 per year Firm X can borrow $12, 000, 500 at 10% external for the swap (re-read the question—X needs to raise $10, 500, 000 and prefers to take action at a floating rate). X's all-in-cost will be: 10% + (LIBOR -. 15%) - on the lookout for. 90% sama dengan LIBOR - 0. 05%. This presents a personal savings of your five basis factors over their very own opportunity to get at LIBOR.

4. Company Back button wants to get $10, 000, 000 flying for your five years; business Y would like to borrow $10, 000, 500 fixed pertaining to 5 years. Their external borrowing chances are demonstrated below:...

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