Company A and B have been offered the following rates per annum on a £50 million, 10 - year loan. Company A borrows at a fixed rate of 6% and floating rate of (LIBOR + 0.4)%. Company B borrows at a fixed rate of 7% and a floating rate of (LIBOR + 0.6)%. a) Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design at least two different swaps that will give a bank, acting as an intermediary 0.6% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text. b) Design a Swap that is the most beneficial to company A. Explain using text and diagram. c) Suppose that company A has an asset worth £10 million yielding an interest of 7%. Suppose that A is a company based in Japan. Explain how it can use a currency swap to transform the asset to an asset paying Yen (currency in Japan).
Company A and B have been offered the following rates per annum on a £50 million, 10 - year loan.
Company A borrows at a fixed rate of 6% and floating rate of (LIBOR + 0.4)%.
Company B borrows at a fixed rate of 7% and a floating rate of (LIBOR + 0.6)%.
a) Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a
b) Design a Swap that is the most beneficial to company A. Explain using text and diagram.
c) Suppose that company A has an asset worth £10 million yielding an interest of 7%. Suppose that A is a company based in Japan. Explain how it can use a currency swap to transform the asset to an asset paying Yen (currency in Japan).
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