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British hardware product manufacturer Scotty Markson plc entered into a two-year interest rate swap with its bank Natwest plc, on a notional principal of 20

British hardware product manufacturer Scotty Markson plc entered into a two-year interest rate swap with its bank Natwest plc, on a notional principal of 20 million and the following terms:

Every year for the next two years, Scotty Markson agrees to pay Natwest 3.2% p.a. and receive from Natwest the 12-month LIBOR.

The LIBOR for the subsequent two years is as given below:

Year 1 and 2

LIBOR (%) 2.8% and 4.0%

What could be some of the conditions (other than speculation) under whichScotty Markson would enter into an interest rate swap with the Natwest bank?

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