Interest rate swaps on the borrowings

Assignment Help Finance Basics

Reference no: EM1315833

Computation of savings with Interest rate swaps on the borrowings.

Dell Inc. wants to borrow pounds, and Virgin Airlines wants to borrow dollars. Because Dell is better known in the U.S., it can borrow on its own dollars at 7% and pounds at 9%, whereas Virgin can borrow dollars at 8% and pounds at 8.5%.

a. Suppose, in fact, that Dell can borrow dollars at 7% and pounds at 9%, whereas Virgin can borrow dollars at 8.75% and pounds at 9.5%. What range of interest rates would make this swap attractive to both parties?

b. Based on the scenario in 1.c, suppose Dell borrows dollars at 7% and Virgin borrows pounds at 9.5%. If the parties swap their current proceeds, with Dell paying 8.75% to Virgin for pounds and Virgin paying 7.75% to Dell for dollars, what are the cost savings to each party?

Reference no: EM1315833

Questions Cloud

Using the window setting to make a graph : Using the window setting to make a graph.

Cost of retained earnings based on discounted cash flow : Evaluate cost of equity, cost of retained earnings based on discounted cash flow, C A P M and Bond cost plus premium methods.

Find the cycle service level : Find the cycle service level that the store achieves with this policy and What is the fill rate that the store achieves with this policy?

What are the cost savings to each party : whereas Virgin can borrow dollars at 8% and pounds at 8.5% and What range of interest rates would make this swap attractive to both parties and what are the cost savings to each party?

Interest rate swaps on the borrowings : Computation of savings with Interest rate swaps on the borrowings - What range of interest rates would make this swap attractive to both parties?

Use mathematical induction to solve the equation : Use mathematical induction to solve the equation.

Interest rate swaps with no rate adjustments : Interest rate swaps with no rate adjustments - What swap transaction would accomplish this objective?

Evaluation of foreign currency : Computation of Foreign Currency - Hedging with forward contracts and find the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure?

Interest rate and currency swap : Explain one risk World would assume by entering into the combined interest rate and currency swap and Currency Swaps, Interest rate swaps with alternative debt issues

User Account

All Pages