Design a swap that is equally attractive to the companies without intermediation.
Design a swap that is equally attractive to the companies without intermediation. | savvyessaywriters.org
Company XX wishes to borrow sterling at a fixed rate of interest. Company YYwishes to borrow dollars at a fixed rate of interest. The notional amounts are the same at the current exchange rate. The borrowing rates of the two companies are as follows:
|
$ Market |
£ Market |
|
|
Company XX |
5% |
9.6% |
|
Company YY |
7% |
11.1% |
- Design a swap that provides a bank acting as intermediary a gain of 30 basis points per year.
- Design a swap that is equally attractive to the companies without intermediation.
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