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Assume Caterpillar Corporation is interested in borrowing at a fixed rate of interest and Harrods of London is interested in borrowing at a floating rate
Assume Caterpillar Corporation is interested in borrowing at a fixed rate of interest and Harrods of London is interested in borrowing at a floating rate of interest. Here are the borrowing rates currently available to each company: Caterpillar Harrods Fixed: 6.00% Floating: LIBOR + 1% Fixed: 6.125% Floating: LIBOR + 1.5% Can Barclays Bank intermediate a mutually beneficial swap between the parties and make a profit for itself? If so, what would be the terms? (a) Yes. Caterpillar borrows fixed at 6.00% and Harrods borrows floating at LIBOR +1.5%. (b) Yes. Caterpillar borrows floating at LIBOR + 1% and pays 6.125% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.25%. (c) Yes. Caterpillar borrows floating at LIBOR + 1% and pays 5.875% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.375%. (d) Yes. Caterpillar borrows floating at LIBOR + 1% and pays 5.75% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.25%. (e) No; there is no mutually beneficial swap available
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