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Commonwealth Bank (CBA) is a commercial bank with a very good credit rating. They wish to borrow AUD 50,000,000 at a floating rate of interest
Commonwealth Bank (CBA) is a commercial bank with a very good credit rating. They wish to borrow AUD 50,000,000 at a floating rate of interest linked to the bank-bill swap rate (BBSW) for a term of five years. Australian Minerals Exports (AME) is a mining company with a medium credit rating. They wish to finance an asset worth AUD 50,000,000 at a fixed rate of interest for a term of five years. CBA and AME face the following borrowing costs in fixed and floating rate markets: Borrower CBA AME Fixed-rate borrowing cost 2.2% 3.6% Floating rate borrowing cost BBSW-0.5% BBSW+0.5% Suppose that CBA and AME decide to enter into an interest rate swap directly with each other where the floating rate is equal to BBSW and the swap generates equal savings to both parties. What is the swap rate of the transaction and which party is the "swap-payer"? O None of the other answers. O The swap rate is BBSW-0.2% and the swap-payer is CBA. O The swap rate is 2.9% and the swap-payer is CBA. O The swap rate is 2.9% and the swap-payer is AME. The swap rate is 3.1% and the swap-payer is AME
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