A savings and loan’s credit rating has just slipped, and half of its assets are long term mortgages. It offers to swap interest payments with a money center bank in a $100 million deal. The bank can borrow short term at LIBOR (3 percent) and long term at 3.95 percent. The S&L must pay LIBOR plus 1.5 percent on short term debt and 7 percent on long term debt. Show how these parties could put together a swap deal that benefits both of them.
Answer to relevant QuestionsA financial firm plans to borrow $100 million in the money market at a current interest rate of 4.5 percent. However, the borrowing rate will float with market conditions. To protect itself, the firm has purchased an ...Who are the principal parties to a standby credit agreement?What risks of securitization should the managers of lending institutions be aware of?What risks do credit derivatives pose for financial institutions using them? In your opinion what should regulators do about the recent rapid growth of this market, if anything?What types of investment securities do banks seem to prefer the most? Can you explain why?
Post your question