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15 Mar 2023
Company A, a British manufacturer wishes to borrow U.S dollars at a fixed rate of interest. Company B, a US multinational, wishes to borrow sterling at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates:
Company A
Sterling -11%
Dollars-7.0%
Company B
Sterlings -10.6%
Dollars- 6.2%
Design a swap that will net a bank, acting as intermediary, 30 basis points per annum. Make a swap appear equally attractive to the two companies and ensure that all foreign exchange risk is not assumed by the financial intermediary.
Company A, a British manufacturer wishes to borrow U.S dollars at a fixed rate of interest. Company B, a US multinational, wishes to borrow sterling at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates:
Company A
Sterling -11%
Dollars-7.0%
Company B
Sterlings -10.6%
Dollars- 6.2%
Design a swap that will net a bank, acting as intermediary, 30 basis points per annum. Make a swap appear equally attractive to the two companies and ensure that all foreign exchange risk is not assumed by the financial intermediary.
15 Mar 2023
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