Should it be an interest-rate swap buyer or seller

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Reference no: EM131572834

1. Bank 2 can issue five-year CDs at an annual rate of 11 percent fixed or at a variable rate of LIBOR+2 percent. Bank 2 can issue five-year CDs at an annual fixed rate of 13 percent or at a variable rate of LIBOR+3 percent. Is there a swap that would benefit both banks? If so, give an example. If not, why not?

2. A bank has assets with an average duration of 3 years and liabilities with an average duration of 1.5 years. Should it be an interest-rate swap buyer (and make fixed-rate payments) or seller (and make variable-rate payments)? Explain.

Reference no: EM131572834

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