In your management role in the treasury of a major financial institution (bank), you are approached by
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Question:
In your management role in the treasury of a major financial institution (bank), you are approached by two corporations (Company X and Company Y) seeking your assistance in arranging an interest rate swap with your institution acting as intermediary.The borrowing capacities of each corporation in the fixed and variable (floating-rate) markets are as follows;
Debt Market | Company Y | Company X |
Fixed-rate funds | 3.10% | 5.10% |
Floating-rate funds | BBSW | BBSW + 0.5% |
Required:
- Suggest some reasons why each of these two companies would enter into this swap transaction.Use dot points where necessary.
- Suppose your institution (the bank) wants you to obtain a spread (gain) of 0.2% from each party to the swap and that company Y requires a gain of at least 0.6%. assemble an intermediated swap that satisfies these conditions. Show all calculations.
Related Book For
Auditing The Art and Science of Assurance Engagements
ISBN: 978-0133405507
13th Canadian edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones
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