CMC CO (JUN 14)

Hi,
I have a question regarding CMC CO (JUN 14).

Here is the case description (you can find this problem on the following link also: https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p4/S18_AFM_Specimen_Exam_Clean_Proof.pdf)

Cocoa?Mocha?Chai (CMC) Co is a large listed company based in Switzerland and uses Swiss
Francs as its currency. It imports tea, coffee and cocoa from countries around the world,
and sells its blended products to supermarkets and large retailers worldwide. The company
has production facilities located in two European ports where raw materials are brought for
processing, and from where finished products are shipped out. All raw material purchases
are paid for in US dollars (US$), while all sales are invoiced in Swiss Francs (CHF).
The company’s board of directors (BoD) has been reviewing its risk management strategies,
and is considering hedging the following two transactions:
(i) a payment of US$5,060,000 which is due in four months’ time; and
(ii) a four?year CHF60,000,000 loan taken out to fund the setting up of four new
production facilities. Interest will be payable on the loan at a fixed annual rate of 2.2%
or a floating annual rate based on the yield curve rate plus 0.40%. The loan’s principal
amount will be repayable in full at the end of the fourth year.

Additional information
The current spot rate is US$1.0635 per CHF1. The current annual inflation rate in the USA is
three times higher than Switzerland.
The following derivative products are available to CMC Co to manage the exposures of the
US$ payment and the interest on the loan:
Exchange?traded currency futures
Contract size CHF125,000 price quotation: US$ per CHF1
3?month expiry 1.0647
6?month expiry 1.0659
Exchange?traded currency options
Contract size CHF125,000, exercise price quotation: US$ per CHF1, premium:
cents per CHF1
Call Options Put Options
Exercise price 3?month expiry 6?month expiry 3?month expiry 6?month expiry
1.06 1.87 2.75 1.41 2.16
1.07 1.34 2.22 1.88 2.63
It can be assumed that futures and option contracts expire at the end of the month and
transaction costs related to these can be ignored.
Over?the?counter products
In addition to the exchange?traded products, Pecunia Bank is willing to offer the following
over?the?counter derivative products to CMC Co:
(i) A forward rate between the US$ and the CHF of US$ 1.0677 per CHF1.
(ii) An interest rate swap contract with a counterparty, where the counterparty can
borrow at an annual floating rate based on the yield curve rate plus 0.8% or an
annual fixed rate of 3.8%. Pecunia Bank would charge a fee of 20 basis points each to
act as the intermediary of the swap. Both parties will benefit equally from the swap
contract.

The requirement is: Demonstrate how CMC Co could benefit from the swap offered by Pecunia Bank.

In the answer, it is assumed that CMC wants to borrow at a variable rate (because now it is borrowing at a fixed interest rate), while the counterparty wants to borrow at a fixed % (as now it is borrowing in variable rate).

My question is the following: Is there an indication in the problem, why CMC wants to borrow at a variable rate (or why it is now borrowing at a fixed rate)?

thanks,
Giga