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, 0.5% per annum and will appear equally attractive to X and Y.

Q: Define breakup value

A: The breakup value is the valuation of the company for liquidation in the market. It is best known as…

Q: Define stand by spares.

A: Current assets:   The assets of the company that cannot be converted into cash within a period of…

Q: Describe briefly how the HST remittance is calculated.

A: Harmonized sales tax remittance: The harmonized sales tax remittance is the amount of sales tax that…

Q: Define forward contract.

A: It is a form of derivative contract which is used as an agreement

Q: What is the difference between a Put option and a Call option? Explain. Provide examples.

A: Option is a derivative instrument which gives a choice to its buyer to buy or sell the underlying…

Q: Briefly describe the connection and the difference between CAPM and Single Index Model (SIM).

A: Capital Asset Pricing Model or CAPM referred to as the relationship between the systematic risk and…

Q: Briefly explain Option Distinguish between Call option and a put option

A: Options are financial instruments whose value is based on underlying securities. An option contract…

Q: Describe a situation when a. Investor would want to use a limit order.

A: The limit order's primary objective is to set a specific price of a security in order to buy or sell…

Q: Define discounting.

A: Time value of money: Time value of money refers to the concept that the value of money available at…

Q: Define each of the following terms:a. Option; call option; put option

A: Options: They are money related instruments subject to the derivatives of hidden protections, for…

Q: Describe the concept of “over-trading” using numeric example if appropriate.’

A: In the world of finance over trading is an important concept for businesses.

Q: What is AB Share Mechanism and what is this mechanism used for?Provide Example

A: An organization's total capital is bifurcated into many units. Each unit represents ownership in the…

Q: Explain the periodicity assumption.

A: Definition:   Generally Accepted Accounting Principles (GAAP): These are the guidelines necessary to…

Q: Describe the discounting process?

A: discounting is the process of determining the future value into present value, In discounting time…

Q: Define derivatives

A: In Finance there are derivative contracts that derive its value from the underlying asset. This…

Q: Define Purchase return.

A: Financial accounting is the process of recording, summarizing, and reporting all the transactions in…

Q: Explain the following terms.(a) LIFO layer.(b) LIFO reserve.(c) LIFO effect

A: (a) LIFO Layer: LIFO Layer refers to a portion of cost in an inventory costing system that follows…

Q: Explain Pass-Through Rates, Yields, and Servicing Fee?

A: Pass-through rateA rate of interest being paid to the investors on the securitized asset after…

Q: Explain Total Return Swap?

A: Swaps are agreement between different businesses and financial institutions  which is customized as…

Q: Explain the term Collateral.

A: Assets refer to those resources which have some economic value held by a corporation, individual or…

Q: Define ask quote (or ask price)

A: The recent price of stock or security at which stock or security is purchased and sold in the stock…

Q: Explain the following terms, Bid Rate and Ask rate

A: Bid and Ask rates are two common rates used in financial markets especially in the foreign exchange…

Q: Define purchase option.

A:

Q: Explain the nature of an option contract.

A: An option contract is a financial derivative instrument that gives the holder the right, but not the…

Q: Explain the types of Leasing

A: Leasing in accounts refers to the practice of obtaining the use of an asset for a specified period…

Q: Define Fixed charge coverage

A: The formula to compute fixed charge coverage ratio:

Q: Give a detail example of option to expand

A: In order to expand the business operations and to invest in a particular project in the future with…

Q: With practical examples, differentiate between compounding and discounting

A: COMPOUNDING CONVERTS THE PRESENT VALUE INTO FUTURE VALUE DISCOUNTING CONVERTS FUTURE VALUR TO…

Q: Define arbitrage

A: Introduction: Usually, an arbitrage opportunity is used when there is the option of purchasing an…

Q: Explain replacement chain (common life) approach

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

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.