Question
Currency Interest Rate Swap A company is borrowing for 4Y in PLN at WIBOR6M + 3,5%, whereas in USD at LIBOR6M + 5%. The company
Currency Interest Rate Swap
A company is borrowing for 4Y in PLN at WIBOR6M + 3,5%, whereas in USD at LIBOR6M + 5%. The company wants to hedge itself against currency risk and interest rate risk using IRS or CIRS. Bank has quoted as follows: for IRS 4Y (WIBOR6M vs. annual fixed): 5,50-5,70%, for CIRS 4Y (LIBOR6M in USD + 5% vs. annual fixed in PLN): 7,00-7,30%. Commission for loan in PLN paid beforehand is 1%, and for loan in USD: 1,75%.
Entering the hedge contract will the company buy or sell swap? What currency the company will choose to borrow in and why?
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