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Question 4 Swaps ( 2 0 Marks ) Sasol, a global chemicals and energy company listed on the Johannesburg Stock Exchange ( JSE ) ,
Question Swaps Marks
Sasol, a global chemicals and energy company listed on the Johannesburg Stock Exchange
JSE is considering entering into an interest rate swap agreement with Mondi, a multinational
packaging and paper company. Both companies want to finance their expansion with a loan of
R million for years.
Sasol wants to finance an interestratesensitive asset and, therefore, wants to borrow at a
floating rate. Mondi wants to finance an interestrateinsensitive asset and, thus, wants to
borrow at a fixed rate.
Sasol can borrow at a fixed rate of or at a floating rate of JIBAR. Mondi can borrow at a
fixed rate of or at a floating rate of JIBAR The swap dealer charges a commission
of with bidask quotes of
Required:
Determine whether there is a swap opportunity for the companies by calculating the quality
spread differential QSD marks
Tabulate the net cash flow for each company and determine the net saving for each
company. marks
Discuss two reasons why a company would enter into a swap agreement. marks
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