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Fitzharris (Sep/Dec 2020)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Fitzharris (Sep/Dec 2020)

  • This topic has 3 replies, 2 voices, and was last updated 3 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • February 27, 2025 at 7:33 pm #715637
    andreeagaitan101
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    Hello,

    I’m struggling again… this time with IR swaps.
    I’ve noticed that some questions do not mention which party prefers fixed interest/floating interest.

    I see in the Answers (marking guide) that the initial decision of who is choosing fixed/floating is marked, so I would be wrong to assume that Fitzharris would look for fixed, because he is looking for some certainty/ hedging operations.

    Therefore, when looking at the full answer, in a first instance it says: ‘Fitzharris has an advantage in borrowing at both fixed and floating, but the floating rate advantage is larger.’ So, I would have expected that, in the end, the target rate for Fitzharris to be floating.

    However, I had a surprise… net result is fixed, not floating.

    Could you please support me in understanding what I’m missing in the rationale?

    Many thanks.
    Andreea

    February 28, 2025 at 8:04 am #715646
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    According to the question Fitzharris can currently borrow at floating rate. However this presents risk because the base rate might change and therefore the interest they will pay is not certain.

    To remove this risk they can exercise a swap and end up paying a fixed rate as a result.

    March 1, 2025 at 11:28 am #715672
    andreeagaitan101
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    Many thanks!

    March 2, 2025 at 7:33 am #715684
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Fitzharris (Sep/Dec 2020)’ is closed to new replies.

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