Differentiate between interest and currency swaps, Corporate Finance

Question:

a) Differentiate between interest and currency swaps.

b) You are the corporate treasurer of Quinnie International Inc. Your firm, rated as AAA, is able to raise capital in the Eurobond market with a fixed rate of 6 ½ % or at floating rate of LIBOR flat. However, Yuk International ltd, with a rating of BB is only able to receive the capital at fixed rate, 7 ½ % or a floating rate of LIBOR + ½ %.

Explain clearly how the companies can benefit of arbitrage possibilities, thus achieving cost savings on borrowing, by the help of an interest rate swap. You should take into account that, this transaction will be dealt through an intermediary and the latter will be claiming 1/8 % for its service. Make clear any assumptions you make.

c) Briefly write on the risks involved in such a swap transaction.

Posted Date: 11/9/2013 1:16:56 AM | Location : United States







Related Discussions:- Differentiate between interest and currency swaps, Assignment Help, Ask Question on Differentiate between interest and currency swaps, Get Answer, Expert's Help, Differentiate between interest and currency swaps Discussions

Write discussion on Differentiate between interest and currency swaps
Your posts are moderated
Related Questions
Question 1: (a) What are the competing theories which have been put forward to explain the term structure of interest rates? Which theories do the evidence tend to support?

Jackson Corporation prepared the following book income statement for its year ended December 31, 2011: Sales

You have been asked to prepare a cash budget for Whitborrow plc for the next three months, October, November and December. The Managers are concerned that they may not have suffici

Here is the pro-forma income statement for Semen Indonesia, an overseas venture that Cemex is planning to invest in.  In this exercise, you will need to evaluate the inve

X is owned entirely by two individuals, A and B (who are unrelated unless otherwise stated).  A owns 60 shares of X common stock (purchased in one transaction for $600).  B owns 40

Summarize the key statistics for the stock and the industry (choose 8 items you believe informative, such as P/E ratio, market capitalization, dividend yield, ROE, sales etc.tion..

develop a corporate finance project and dissices all ground of financials areas

discuss advantages and disadvantages of alternative dividend polices,ieno dividend pay out for the pst five years,dividend of 50% of earnings paid out,a low but constant dividend p

Problem: (a) What are the main functions of the Bank of Mauritius? Give short comments on each function. (b) The Repo rate is an instrument of monetary policy for the Bank

what is the agency relationship between shareholders and auditore