Determine the swap strategy that maximises the benefit

Assignment Help Finance Basics

Reference no: EM133492035

Case: The board of a company (Firm A) has agreed to pursue a new project and the Chief Financial Officer (CFO) speaks with several banks and determines that it may borrow:

Floating at BBSW + 3.65%pa
Fixed rate debt at 11.45%pa

The CFO of a mid-sized corporate (Firm B) speaks with their banker and learns that it may borrow:

Floating at BBSW + 4.15%pa
Fixed rate debt at 13.15%pa

Government debt is trading at 4.85%pa

Both CFO's happen to approach the same investment bank, you, to explore funding options. You recommend that each party enter into a swap with your bank. Note: a prerequisite of your bank entering into swap transactions is the bank makes a minimum of 0.075% profit on each leg.

Required

Question 1: Determine the swap strategy that maximises the benefit of the swap for each party, including your investment bank.

Specify the swap cashflows

Question 2: Calculate the borrowing costs and the benefit to each party from entering into the swap.

Reference no: EM133492035

Questions Cloud

Portfolio as performance provide sufficient justification : Does Portfolio As performance provide sufficient justification to prove or disprove conclusively your client's belief that markets are weak-form efficient

What is the evidence for the effectiveness of the strategies : What is the evidence for the effectiveness of these strategies? What are the challenges of using health communication to promote health behavior change?

How long will it take to pay off the mortgage : With this? plan, how long will it take to pay off the mortgage if the EAR of the loan is? unchanged

What is your open position at the close of trading : What was the quantum, and direction, of your exposure to movements in the physical market based upon your opening trade? What is your open position at the

Determine the swap strategy that maximises the benefit : Determine the swap strategy that maximises the benefit of the swap for each party, including your investment bank

In what ways does diversity affect your cte classes : In what ways does diversity affect your CTE classes? What are ways in which you can become a more culturally responsive teacher?

Develop a powerpoint for an elementary classroom : The PowerPoint content must deal with health/fitness/exercise knowledge base and activities. One slide must contain one physical activity the child and parent

Examine the cost of borrowing on behalf of your firm : If you were a financial manager why would the weighted cost of capital be important to you as you examine the cost of borrowing on behalf of your firm

What should you consider in your plan : You are a newly appointed president/chair to the Board of Directors and are in charge of coming up with plan to improve. What should you consider in your plan?

User Account

All Pages