Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here:   Fixed-RateBorrowing CostFloating-RateBorrowing CostCompany X10%LIBORCompany Y12%LIBOR + 1.5% A swap bank proposes the following interest only swap:X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90 percent. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent. What is the value of this swap to the swap bank?Group of answer choicesThe swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year.none of the optionsThe swap bank will break even.The swap bank will lose money on the deal.

ABC Ltd can borrow from the market at a fixed rate for 5 years of 5% or floating rate at LIBOR + 0.1%. XYZ Ltd can borrow fixed for 5 years at 7% or floating rate at LIBOR+0.5%. Both companies decide to borrow from the market using their comparative pricing advantages and swap interest payments with each other. In the swap contract, XYZ agrees to pay ABC fixed at 5.5% and ABC agrees to pay LIBOR to XYZ. What is the net effective borrowing cost for XYZ after the swap? hint - draw a diagram to see the interest rates flowing to XYZ. Select one: a. 6% b. LIBOR-0.5% c. 5.5% d. LIBOR

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment.Fixed rate Company X is 4% ；Floating rate Company X is BBSW；Fixed rate Company Y is 5% ；Floating rate Company Y is BBSW+2.5%. Company X requires a floating-rate investment. Company Y requires a fixed rate investment. Design a swap such that the dealer bank can receive a commission fee of 0.5% p.a., and the net gain is equally shared between the two companies. Please answer the following questions: (1) Identify the relative comparative advantages for each of the two companies. (2) Compute the net gains from the swap, and how much each company will receive. (3) Design the swap. You can either simply draw the swap plot or discuss the steps in words, to cover the following items. – What rates do each company invest at? – How do they exchange the interest payments with their counter-party? – What are their final investment returns?

A semi-annual pay interest rate swap where the fixed rate is 5% (with semi-annual compounding) has a remaining life of ten months. The six-month LIBOR rate observed two months ago was 4.85% with semi-annual compounding. Today’s four and ten month zero rates are 5.3% and 5.8%, respectively, per annum continuously compounded. The swap has a principal value of $1,000,000. a) For this interest rate swap, the party receiving a fixed rate of interest is the (swap buyer or swap seller), and effectively holds (a short position or a long position) in a fixed-rate bond and (a short position or a long position) in a floating-rate bond. b) The value of the interest rate swap to the buyer is ? . Note: Please provide your answer as an integer without commas in the format of xxxxxx (for example, if the answer is $123,456.00, type in 123456; if the answer is -$123,456.00, type in -123456).

A swap bank has identified two companies with mirror-image financing needs—they both want to borrow equivalent amounts for the same amount of time. Company X has agreed to one leg of the swap but company Y is "playing hard to get."Group of answer choicesCompany X should lobby Y to "get on board."none of the optionsThe swap bank could just sell the company X side of the swap.Company Y should calculate the QSD and subtract that from their best outside offer.

A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow €1,000,000 for one year and B wants to borrow $2,000,000 for one year. The spot exchange rate is $2.00 = €1.00, a swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR.                     USD                                                                        Euro                                            Bid Ask Bid Ask 8%  8.1% 6%   6.1%  The firms external borrowing opportunities are € borrowing       $ borrowingA€7% $8%B€6% $9%Group of answer choicesThere is no mutually beneficial swap at these prices.Firm A does 2 swaps with the swap bank, $ at ask and € at bid. Firm B does 2 swaps with the swap bank, $ at bid and € at ask. Firms A and B would each save 90bp and the swap bank would earn 20bp.Firm A does 2 swaps with the swap bank, $ at bid and € at ask. Firm B does 2 swaps with the swap bank, $ at ask and € at bid. Firms A and B would each save 90bp and the swap bank would earn 20bp.none of the options