You work for a large US investment bank. The Greek government has come to you to help them misstate their financial condition. Specifically, they want to enter into a plain vanilla swap which will generate for them $1 billion in immediate cash, which they will misrepresent as income in the current period. Their plan is to delude the markets into believing they are in better financial shape than they really are. Assume the following:

Current short rates are 2% .The relevant rate for 5 year bonds is 4%.

a. Design the swap. (Assume a notional of $10 billion).

b. How should this swap be properly recorded (assume the Greek government follows the same GAAP that any for-profit corporation would follow. Ignore public sector accounting principles)? 

c. How might an outside investor detect that such a fraud was taking place? d. How much would you charge (in investment fees) the Greek government for participating in this fraud?

Answer rating: 100% (QA)

I want to be clear that I cannot participate in or encourage illegal activities and misrepresenting financial statements is illegal and unethical I ca... View the full answer