2 Suppose the quote for a five-year swap with semiannualpayments is 8.50-8.60 percent in dollar against dollar LIBOR(London Interbank Offered Rate) flat. It meansO the swap bank will pay semiannual fixed-rate dollar payments of8.60 percent against receiving six-month dollar LIBORO The swap bank stands ready to pay 8.60 percent against receivingdollar LIBOR on five-year loansthe swap bank will receive semiannual fixed-rate dollar paymentsof 8.50 percent against paying six-month dollar LIBORO if the swap bank is successful in getting counterparties to bothlegs of the swap at these prices, the bank will have an annualprofit of ten basis points

Swap Bank A swap bank acts as an intermediary between the two counterparties who want to enter into…

Answered: Suppose the quote for a five-year swap…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Use the following information about an interest rate SWAP contract to answer the following question. Assume ½ for the date count fraction. (Do not round intermediate calculations.) If Bank of America wants to make a book P/L of $30,000, what adjustment should it make to its LIBOR floating payments? Counter Parties Notional Principal Fixed Rate payer Fixed Rate Floating Rate Payer Floating Rate Floating Rate Reset Effective date Maturity Date Barclays & Bank of America $8,000,000 Barclays 6% (s.a.) Bank of America LIBOR+???bp (s.a.) 6 months December 21, 2020 December 21, 2023 Term (Years) Pay rate zero Discount Factor Receive rate zero 0.5 5.25% 0.9747 5.33% Discount Factor 0.9744 1 5.78% 0.9454 5.88% 0.9445 1.5 5.97% 0.9167 6.17% 0.9141 2 6.22% 0.8863 6.33% 0.8845 2.5 6.31% 0.8582 6.43% 0.8557 3 6.39% 0.8304 6.51% 0.8276 Provide you answer in basis points, rounded to two decimal points. Recall that 1% = 100 basis points. The following numbers are meant to provide guidance for…
In June 2021, swap dealers were quoting a rate for five-year sterling interest-rate swaps of 5.00% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 4.60%. Suppose that A arranges with a dealer to swap a £10 million five-year fixed- rate loan for an equivalent floating-rate loan, answer the following: Note: Leave no cells blank - be certain to enter "0" wherever required. a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1.6%. Who gains and who loses? c. What is now the value of the swap to A for each £1,000 of par value? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. a. Swap value b. Who gains and who loses? c. Swap value
Amazon would like to get a floating rate loan $10,000,000. It can borrow at 7.93% or Libor + 1%. A swap bank quotes 7.49 - 7.65 against flat Libor. How much can Amazon save (in basis points) by entering a swap agreement? 56
Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year swap interest rates are quoted in the table below. At what rate will Tyson receive dollars and at what rate will Tyson pay euros? Question 8 options: Receive at 2.28% and pay at 1.89% Receive at 2.23% and pay at 1.95% Receive at 2.28% and pay at 1.95% Receive at 2.23% and pay at 1.89%
In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 5.4% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 5.0%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed-rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "O0" wherever required.) a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? Swap value b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 2.0%. Who gains and who loses? Dealer gains; A loses A gains; Dealer loses c. What is now the value of the swap to A for each €1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Swap value
In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 4.5% against Euribor (the short-term) interest rate for euro loans). Euribor at the time was 4.1%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed- rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "0" wherever required.) a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? Swap value b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1%. Who gains and who loses? Dealer gains; A loses O A gains; Dealer loses c. What is now the value of the swap to A for each €1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Swap value
Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company A Fixed (%) Floating (%) LIBOR + 1.2 B LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text.
Suppose that a commodity’s respective forward prices for 1 year and 2 years are $150 and $158. The 1-year effective annual interest rate is 5.9%, and the 2-year interest rate is 6.6%. You will pay a fixed rate of $153.85906 in a 2-year swap and receive the floating rate. At the time you enter the swap contract, its value to you is... A.$0.0084 B.$–0.0084 C.$0.0051 D.. $–0.0051 E.$000000
Company X and Company Y have been offered for the following rates per annum on a RM30 million 5-year loan. Company X Company Y Fixed rate 12.5% 12.5% Floating rate 3-month KLIBOR+2% 3-month KLIBOR + 2.75% Preferred loan Fixed rate Floating rate You work for KL Bank, and thinks that the quoted rate are arbitrageable by means of an interest rate swap. Design a fixed-for-floating interest rate swap. Show the percentage gain to each party, assuming that the mispricing is split equally among three parties.
At the present time one can enter five-year swaps that exchange LIBOR for 8%. An off-market swap would be defined as a swap of LIBOR for a rate other than 8%. For example, a firm with a 10% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 10%. What up-front payment will be required to induce a counterparty to take the other side of the swap? Assume a notional principal of $10million. Use 8% as discount rate for all horizons.
Current USD Interest rates are 7% per annum and AUD rates are 9% per annum, flat for all terms. Current value of AUD is 0.62 USD. Under a FX swap agreement, a financial institution pays 8% per annum in AUD and receives 4% per annum in USD. Notional principals are 12 Million USD and 20 Million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last 5 more years. What is the value of the swap to the financial institution?
A company FORTIS, issued a 5 years loan with a gloating rate EURIBOR + 0.75%. It sets up a fixed / variable swap with a bank. The quotation of the swap is as follows: 5-year swap: EURIBOR /3.75%. What is the cost of borrowing of this company after swap? a. 0.75%b. 4.5%c. EURIBOR + 4.5%d. None of the above

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