b) Corn Corp. and Grain Ltd. are the two main players in the plantation industry. Both...

 

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b) Corn Corp. and Grain Ltd. are the two main players in the plantation industry. Both of the firms are considering a financing of RM50 million respectively. As an executive at a local investment bank, you have been working on developing interest rate swap (IRS) to corporate clients for their investment mechanism. Corn Corp. has financing options of floating rate, 6-month KLIBOR plus 2.0 percent and fixed-rate of 8.25 percent. Meanwhile Grain Ltd has options of floating rate, 6-month KLIBOR plus 0.10 percent and fixed rate of 7.25 percent. Assume, they have an arbitrage opportunity. i) ii) By using a diagram, explain the fixed-for-floating IRS transaction for the above situation with your bank as the intermediary. (7 marks) Based on the above transaction in b (i), shows the net gain and benefits to each party if they have equally advantage from the IRS. (8 marks) b) Corn Corp. and Grain Ltd. are the two main players in the plantation industry. Both of the firms are considering a financing of RM50 million respectively. As an executive at a local investment bank, you have been working on developing interest rate swap (IRS) to corporate clients for their investment mechanism. Corn Corp. has financing options of floating rate, 6-month KLIBOR plus 2.0 percent and fixed-rate of 8.25 percent. Meanwhile Grain Ltd has options of floating rate, 6-month KLIBOR plus 0.10 percent and fixed rate of 7.25 percent. Assume, they have an arbitrage opportunity. i) ii) By using a diagram, explain the fixed-for-floating IRS transaction for the above situation with your bank as the intermediary. (7 marks) Based on the above transaction in b (i), shows the net gain and benefits to each party if they have equally advantage from the IRS. (8 marks)

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