Suppose abc investment banker ltd is quoting swap

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International Financial Management
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Chapter 17 / Exercise 32
International Financial Management
Madura
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22)Suppose ABC Investment Banker Ltd., is quoting swap rates as follows: 7.50 7.85 annuallyagainst six-month dollar LIBOR for dollars, and 11.00 percent11.30 percent annually againstsix-month dollar LIBOR for British pound sterling. ABC would enter into a $/£ currency swap inwhich:22)A)it will receive annual fixed-rate dollar payments at 7.85 percent against payingannual fixed-rate £ payments at 11 percent.B)it would pay annual fixed-rate dollar payments of 7.5 percent in return for receivingannual fixed-rate £ payments at 11.3 percent.C)it would pay annual fixed-rate dollar payments of 7.5 percent in return for receivingannual fixed-rate £ payments at 11.3 percent, and it will receive annual fixed-ratedollar payments at 7.85 percent against paying annual fixed-rate £ payments at 11percent.D)none of the optionsAnswer:C
Topic:Basic Interest Rate Swap10
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International Financial Management
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Chapter 17 / Exercise 32
International Financial Management
Madura
Expert Verified
23)Use the following information to calculate the quality spread differential (QSD).Fixed-Rate Borrowing CostFloating-Rate Borrowing CostCompany X10 %LIBORCompany Y12 %LIBOR + 1.5%23)
Topic:Basic Interest Rate Swap24)Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow$10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below.Fixed-Rate Borrowing CostFloating-Rate Borrowing CostCompany X10 %LIBORCompany Y12 %LIBOR + 1.5%A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at10.05 percent –10.45 percent against LIBOR flat.Assume company Y has agreed, but company X will only agree to the swap if the bank offersbetter terms.What are the absolute best terms the bank can offer X, given that it already booked Y?24)
Topic:Basic Interest Rate Swap11
25)Company X wants to borrow $10,000,000 for 5 years; company Y wants to borrow £5,000,000 for 5years. The exchange rate is $2 = £1 and is not expected to change over the next 5 years. Theirexternal borrowing opportunities are shown here:$ Borrowing£ BorrowingCostCostCompany X$10 %£10.5 %Company Y$12 %£13 %A swap bank proposes the following interest only swap:X will pay the swap bank annual payments on $10,000,000 with the coupon rate of 9.80 percent; inexchange the swap bank will pay to company X interest payments on £5,000,000 at a fixed rate of10.5 percent. Y will pay the swap bank interest payments on £5,000,000 at a fixed rate of 12.80percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of 12percent.What is the value of this swap to the swap bank?25)

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