Question
Company A wishes to borrow U.S. dollars at a fixed rate of interest. Company B wishes to borrow sterling (British Pounds) at a fixed rate
Company A wishes to borrow U.S. dollars at a fixed rate of interest. Company B wishes to borrow sterling (British Pounds) at a fixed rate of interest. They have been quoted the following rates per annum (adjusted for differential tax effects): Sterling US Dollars Company A 11.0% 7.0% Company B 10.6% 6.2% Design a swap that will net a bank, acting as intermediary, 10 basis points per annum and that will produce a gain of 15 basis points per annum for each of the two companies. If Company B receives USD 6.2% from the financial institution, what is the Sterling rate that it must pay to the financial institution? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).
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