Citibank is able to borrow fixed at 4% and variable at Libor while Natwest can borrow fixed
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Question:
Citibank is able to borrow fixed at 4% and variable at Libor while Natwest can borrow fixed at 4.5% and variable at Libor + 0.2%. The swap bank is quoting five-year dollar interest rate swaps at 4.1 – 4.2 percent against LIBOR.
a. What is the net gain (in percentage) to Citibank?
b. Calculate the quality spread differential (QSD).
c. Do you think the QSD was split fairly? Why or why not?
d. Why might these firms choose to use a swap bank rather than swap directly?
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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