A swap bank has identified two companies with mirror-image financing needs—they both want to borrow equivalent amounts for the same amount of time. Company X has agreed to one leg of the swap but company Y is "playing hard to get."Group of answer choicesCompany X should lobby Y to "get on board."none of the optionsThe swap bank could just sell the company X side of the swap.Company Y should calculate the QSD and subtract that from their best outside offer.

Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here:   Fixed-RateBorrowing CostFloating-RateBorrowing CostCompany X10%LIBORCompany Y12%LIBOR + 1.5% A swap bank proposes the following interest only swap:X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90 percent. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent. What is the value of this swap to the swap bank?Group of answer choicesThe swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year.none of the optionsThe swap bank will break even.The swap bank will lose money on the deal.

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment.Fixed rate Company X is 4% ；Floating rate Company X is BBSW；Fixed rate Company Y is 5% ；Floating rate Company Y is BBSW+2.5%. Company X requires a floating-rate investment. Company Y requires a fixed rate investment. Design a swap such that the dealer bank can receive a commission fee of 0.5% p.a., and the net gain is equally shared between the two companies. Please answer the following questions: (1) Identify the relative comparative advantages for each of the two companies. (2) Compute the net gains from the swap, and how much each company will receive. (3) Design the swap. You can either simply draw the swap plot or discuss the steps in words, to cover the following items. – What rates do each company invest at? – How do they exchange the interest payments with their counter-party? – What are their final investment returns?

ABC Ltd can borrow from the market at a fixed rate for 5 years of 5% or floating rate at LIBOR + 0.1%. XYZ Ltd can borrow fixed for 5 years at 7% or floating rate at LIBOR+0.5%. Both companies decide to borrow from the market using their comparative pricing advantages and swap interest payments with each other. In the swap contract, XYZ agrees to pay ABC fixed at 5.5% and ABC agrees to pay LIBOR to XYZ. What is the net effective borrowing cost for XYZ after the swap? hint - draw a diagram to see the interest rates flowing to XYZ. Select one: a. 6% b. LIBOR-0.5% c. 5.5% d. LIBOR

Alpha and Beta Companies can borrow for a five-year term at the following rates: Alpha Beta Moody’s credit rating Aa Baa Fixed-rate borrowing cost 10.5% 12.0% Floating-rate borrowing cost LIBOR LIBOR + 1% a. Calculate the quality spread differential (QSD). b. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating-rate debt and Beta desires fixed- rate debt. No swap bank is involved in this transaction. Assume the party, who pays floating- rate to his counterparty, needs to pay LIBOR

The bank sells John's house at an auction. Unfortunately the selling price is less than what he still owes on the house, so John is forced to pay the difference through a _____.repossessionforeclosure collateraldeficiency judgment