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Hi
Sir in the December 2014 question 2 Keshi Co, how will I know if Keshi will borrow fixed or floating rate?
In the answer it say that Keshi will borrow floating to swap to a fixed. Why not borrow a fixed to swap with a floating?
If they borrowed fixed and swapped to floating, then there would not be a saving – there would be extra cost, and so that would not be a strategy worth recommending.
Although the question does not specifically state whether they want to end up with fixed or floating, it does imply that the would swap so as to end up paying floating because it mentions increasing uncertainty with regard to LIBOR.
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