What are the rationales of interest swaps, Financial Management

Assignment Help:

Question:

i) What are the rationales of interest swaps?

ii) You are the corporate treasurer of LSE International Inc. Your firm, rated as AAA, is able to raise capital in US dollars at a floating rate of LIBOR+0.6% or Canadian dollar at 5.25% flat. However, Ox International ltd, with a rating of BB is only able to receive the capital in US dollar at floating rate of LIBOR +1% or in Canadian Dollar at a fixed rate of 6.75%.

Consider that LSE International Inc wants to borrow in US dollars at a floating rate of interest and Ox International ltd wants to borrow Canadian dollars at a fixed rate of interest. A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is equally attractive to both LSE International Inc and Ox International Inc, construct a swap and show the rates of interest they
will end up paying.

iii) Are there any risks involved in such a transaction? Briefly discuss.


Related Discussions:- What are the rationales of interest swaps

FINANCIAL RISK MGT, DQ #1: Discuss the challenges of VaR approaches in valu...

DQ #1: Discuss the challenges of VaR approaches in valuing risk. How does portfolio risk assessment differ from a single asset’s risk assessment? How do managers typically load ba

What is estate tax, Q. What is Estate Tax? Estate Tax - Tax on the valu...

Q. What is Estate Tax? Estate Tax - Tax on the value of a DECENDENT'S taxable estate, usually defined as the decedent's ASSETS less LIABILITIES and certain expenses that may in

Features and purpose CDs , The distinct features of CDs are: CD is a ...

The distinct features of CDs are: CD is a document of title to a time deposit and is distinct from conventional time deposit with respect to negotiability and marketability.

Cash flow yield analysis, A cash-flow yield is the discount r...

A cash-flow yield is the discount rate that makes the price of a mortgage-backed or asset-backed security equal to the present value of its ca

Explain career counselling process, Q. Explain career counselling process? ...

Q. Explain career counselling process? The career counselling process should contain the following elements: a. The employee's should goals, aspirations and expectations wit

Show the accept-reject criteria, Q. Show the Accept-Reject Criteria? Ac...

Q. Show the Accept-Reject Criteria? Accept-Reject Criteria:- If the actual payback period is not more than the predetermined payback period...................... Project

Break even period, It is also important to compare the returns from t...

It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div

Exchange Rate Parity Conditions, 1) According to the IFE (RIP), if U.S. inv...

1) According to the IFE (RIP), if U.S. investors expect a 3% rate of domestic inflation over one year, and a 6% rate of inflation in European countries that use the EUR, and requir

Price volatility characteristic of bond with embedded option, The price of ...

The price of the embedded option comprises two components. The first is the value of the same bond assuming it has no embedded option (option-free bond), th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd