Question: The table below contains the borrowing rates (per annum) for Company AAA and Company BBB on AUD. Company AAA Company BBB Fixed-rate borrowing cost 10%

The table below contains the borrowing rates (per annum) for Company AAA and Company BBB on AUD. Company AAA Company BBB Fixed-rate borrowing cost 10% 11.5% Floating-rate borrowing cost LIBOR LIBOR + 1% If Company AAA wants to borrow at a floating-rate and Company BBB wants to borrow at a fixed-rate. Both companies are considering entering into a swap to save their borrowing costs. Suppose that a swap bank is involved as a financial intermediary and will make a profit of 0.1% from this swap transaction, and both companies have an equal cost saving in their borrowing costs. Which of the following statements is/are correct? i. Company AAA has comparative advantage in fixed rate market. ii. Cost saving for each company after the swap transaction is 0.25%. iii. Both companies will exchange notional principal at the beginning and the end of the swap's life. iv. Assume that the party who pays floating to the other party pays them straight LIBOR, Company AAA will receive 10.25% from the swap bank in this transaction. The table below contains the borrowing rates (per annum) for Company AAA and Company BBB on AUD. Company AAA Company BBB Fixed-rate borrowing cost 10% 11.5% Floating-rate borrowing cost LIBOR LIBOR + 1% If Company AAA wants to borrow at a floating-rate and Company BBB wants to borrow at a fixed-rate. Both companies are considering entering into a swap to save their borrowing costs. Suppose that a swap bank is involved as a financial intermediary and will make a profit of 0.1% from this swap transaction, and both companies have an equal cost saving in their borrowing costs. Which of the following statements is/are correct? i. Company AAA has comparative advantage in fixed rate market. ii. Cost saving for each company after the swap transaction is 0.25%. iii. Both companies will exchange notional principal at the beginning and the end of the swap's life. iv. Assume that the party who pays floating to the other party pays them straight LIBOR, Company AAA will receive 10.25% from the swap bank in this transaction
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