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A. Adrianna works for a financial intermediary. She meets 2 clients today: FINM.Co wishes to borrow Australian dollars (AUD) at a floating rate, and BUS.co
A. Adrianna works for a financial intermediary. She meets 2 clients today: FINM.Co wishes to borrow Australian dollars (AUD) at a floating rate, and BUS.co wishes to borrow the British pounds (GBP) at a fixed rate of interest. If these companies borrowed on their own, they face the following rates, p.a.: FINM.CO BUS.CO AUD Fixed 4% Fixed 6% Floating LIBOR + 2% Floating LIBOR + 5% GBP Fixed 1.6% Fixed 6.4% Floating LIBOR + 1.5% Floating LIBOR + 1.1% Help Adrianna design a swap that will net her, as the intermediary, 15 basis points per annum and that will assign 60% of the gains for FINM.co and 40% of the gains for BUS.co. Describe the cashflows for all three parties. (10 marks)
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