What are the rationales of interest swaps, Financial Management

Assignment Help:

Question:

i) What are the rationales of interest swaps?

ii) You are the corporate treasurer of LSE International Inc. Your firm, rated as AAA, is able to raise capital in US dollars at a floating rate of LIBOR+0.6% or Canadian dollar at 5.25% flat. However, Ox International ltd, with a rating of BB is only able to receive the capital in US dollar at floating rate of LIBOR +1% or in Canadian Dollar at a fixed rate of 6.75%.

Consider that LSE International Inc wants to borrow in US dollars at a floating rate of interest and Ox International ltd wants to borrow Canadian dollars at a fixed rate of interest. A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is equally attractive to both LSE International Inc and Ox International Inc, construct a swap and show the rates of interest they
will end up paying.

iii) Are there any risks involved in such a transaction? Briefly discuss.


Related Discussions:- What are the rationales of interest swaps

Permanent and temporary working capital, Permanent and Temporary Working Ca...

Permanent and Temporary Working Capital, I am looking for assignment help on the topic Permanent and Temporary Working Capital. It would be great if anyone help me.

Credit markets, Credit Markets: The financial system enables supply of ...

Credit Markets: The financial system enables supply of funds to support purchase of goods and services and to finance capital investments. In this way, it provides funds both t

Main characteristics of the resource-based approach, Z Company is very succ...

Z Company is very successful as market leader in digital media products where it has demonstrated its ability to innovate in new product development and design at a very fast pace,

State the term- dealing with general risk, State the term- Dealing with gen...

State the term- Dealing with general risk Part  of  the  strategic  decision  making  process  is  to  analyse  all  risk  factors  involved  with pursuing a specific course of

Valuation using treasury spot rates, To understand how treasury spot ...

To understand how treasury spot rates are used to calculate the arbitrage-free value of the treasury security, we will take imaginary treasury spot rates (given i

Is there an optimal capital structure, Is there an optimal capital structur...

Is there an optimal capital structure? What is it and how can it be calculated? There is no optimal capital structure. Capital structure is a variable which depends on the incl

What is price earnings ratio, What is the Price earnings (PE) ratio PE ...

What is the Price earnings (PE) ratio PE = Market share price/EPS (no. of times) PE ratio is the most widely quoted investors 'ratio. It demonstrates market confidence in a

Calculate the monetary performance of a firm, a) Year 2 ROCE = $400k / $1,0...

a) Year 2 ROCE = $400k / $1,000k = 40% Year 1 ROCE = $360k / $800k = 45% b) ROCE is an efficiency ratio that measures the monetary performance of a firm compared with the amo

Determine primary variables being balanced in the eoq, What are the primary...

What are the primary variables being balanced in the EOQ (Economic Order Quantity) inventory model?  Explain The primary variables being balanced in the EOQ (Economic Order Quant

Define multinational corporations (mncs), What are multinational corporatio...

What are multinational corporations (MNCs) and what economic roles do they play? A multinational corporation (MNC) can be described as a business firm incorporated in one count

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd