You are an analyst at a local bank and one of your corporate customers is interested in fixed rate USD funding. Your bank desires TTD funding. The following borrowing costs are available: FIXED USD FLOATING USD FIXED TTD BORROWING COSTS Local FIRM 6% LIBOR + 1% 4% Local BANK 4.5% LIBOR 3.5% A Can a swap be structured that benefits both parties? Illustrate how a swap can be structured to benefit both partied and calculate the effective rates assuming gains are divided equally?
You are an analyst at a local bank and one of your corporate customers is interested in fixed rate USD funding. Your bank desires TTD funding. The following borrowing costs are available: FIXED USD FLOATING USD FIXED TTD BORROWING COSTS Local FIRM 6% LIBOR + 1% 4% Local BANK 4.5% LIBOR 3.5% A Can a swap be structured that benefits both parties? Illustrate how a swap can be structured to benefit both partied and calculate the effective rates assuming gains are divided equally?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are an analyst at a local bank and one of your corporate customers is interested in fixed
rate USD funding. Your bank desires TTD funding. The following borrowing costs are
available:
BORROWING
COSTS
Local FIRM
Local BANK
FIXED USD
6%
4.5%
FLOATING USD
LIBOR + 1%
LIBOR
FIXED TTD
4%
3.5%
A Can a swap be structured that benefits both parties? Illustrate how a swap can be
structured to benefit both partied and calculate the effective rates assuming gains are
divided equally?
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