Swaps-arbitrage-interest rate swaps-hedging

Reference no: EM1333995

1. Company A, a low-rated firm, desires a fixed-rate, long-term loan. Company A currently has access to floating-rate funds at a margin of 1.5% over LIBOR. Its direct borrowing cost is 13% in the fixed-rate bond market. In contrast, Company B, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 11% and floating-rate funds at LIBOR + 0.50%.

How can A and B use a swap to advantage?

2. Explain how Cisco Systems can use arbitrage to create a forward forward to fix the interest rate on a three-month $10 million loan to be taken out in nine months. The loan will be priced off LIBOR. (Hint: Lecture Slide 18)

3. Explain why an interest rate swap is a useful tool for active liability management and for hedging against interest rate risk.

Reference no: EM1333995

Questions Cloud

Interest versus dividend income : Compute the firms tax on its operating earnings only. Find out the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds.

Explaining problem identification and formulation : The most challenging aspect of the decision making process and the most important is problem identification and formulation. What is your opinion?

Explain bricks and mortar : Explain Bricks and Mortar and Explain how the marketing differs from traditional brick and mortar marketing

Employee retention and hr development : Use of technology, employee retention, and HR development have been at the core of HR becoming more strategic at Xerox. Why have those areas been so key?

Swaps-arbitrage-interest rate swaps-hedging : Discuss why an interest rate swap is a useful tool for active liability management and for hedging against interest rate risk.

Explain supply chain differences between b2c and b2b : Explain Supply chain differences between B2C and B2B and a brick and mortar store

Service help decision makers impact decisions are framed : Will this product or service help other decision makers impact how decisions are "framed"? If so, how?" In your response, include the link with a citation in APA format for the company you reviewed.

Retirement of debt : Can early retirement of debt be relied upon as a cost-saving measure when incurring long-term debt? Why or why not?

Explain and analyze the marketing of web sites : Explain and Analyze the marketing of Web sites and Describe the supply chain for the business area selected when in a brick and mortar environment

User Account

All Pages