This problem examines the role of a financial intermediary in arranging two separate interest rate swaps with
Question:
This problem examines the role of a financial intermediary in arranging two separate interest rate swaps with two companies that would like to transform a floating rate loan into a fixed rate loan and vice versa. Consider the following situation:
Company A aims at transforming a fixed rate loan paying 6.2% per annum into a floating rate loan paying LIBOR + 0.2%.
Company B aims at transforming a floating rate loan paying LIBOR + 2.2% into a fixed rate loan paying 8.4% per annum.
Instead of having these two companies getting in touch directly to arrange an interest rate swap, how can a financial intermediary design separate interest swaps with the two companies and secure a profit on the spread of the borrowing rates?
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A financial intermediary can act as a facilitator in arranging interest rate swaps between Company A ...View the full answer
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Gaurav Soni
Teaching was always an area where I can pursue my passion. I used to teach my friends and junior during my school and college life. After completing my professional qualification (chartered accountancy) and before joining my job, I also joined an organization for teaching and guidance to my juniors. I had also written some articles during my internship which later got published. apart from that, I have also given some presentations on certain amendments/complex issues in various forms.
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