2. Companies X and Y have been offered the following rates per annum on a $5 million 10-year loan: Fixed Rate Floating Company X Company Y 5.1% LIBOR 6.4% LIBOR-0.3% Company X requires a floating-rate loan; company Y requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 0.1% per annum and will appear equally attractive to X and Y.

Q: Define the term line positions.

A: Employees in the line positions are primarily responsible for achieving the goals of the…

Q: Explain Matching Principles?

A: Matching concept is an accounting principle which explains the need to match revenue with the…

Q: Distinguish between reverse engineering and reengineering.

A:

Q: Explain compound interest.

A: Compound interest.

Q: Explain Concept Syndications?

A: Syndication is a process by which small lenders come together and they lend the money to a big…

Q: Describe the Scatterplot Method

A: The objective of the question is to understand the Scatterplot method, which is a graphical…

Q: Define covered call option

A: Covered call option It alludes to financial market exchanges where the financial specialist who…

Q: Describe the revaluation model.

A: Introduction: The revaluation model stretches a business the option of carrying a fixed asset at its…

Q: Match the terms

A: Accounting principles are the accounting rules which an organization must follow while maintaining…

Q: Explain an example of faithful representation.

A:

Q: Discuss transaction cycles.

A: A transaction cycle is an interlocking set of the  business deals. Utmost of these deals can be…

Q: Define split-off point.

A: Contribution approach: The contribution approach calculates the net profit by calculating the…

Q: Define Double-entry system.

A: Double entry system: Double entry system is a way of accounting or bookkeeping which implies that…

Q: Define conversion price

A: Introduction: The conversion price is stated when the security is delivered. In case of a…

Q: Describe about the concept of COGS.

A: Cost of goods sold (COGS): Cost of goods sold is the accumulate amount of all direct cost incurred…

Q: Explain replacement chain (common life) approach

A: The replacement chain method compares two or more mutually exclusive capital proposals that possess…

Q: Explain consignment arrangement with example.

A: Goods in transit: Goods in transit can be described as the inventories which are shipped by the…

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.