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Hi jhon please help me with the following doubts
Jhon In this questions they are also using a swap offered by rozu bank . I have gone through your video and as far as my understanding it is given that
Keshi co. Rozu bank offer fixed rate. 5.5 %. 4.6%
Floating. Libor+ 0.4 Libor +0.3
Now what I have done is assumed that first keshi Co will borrow at 5.5 and rozu bank will at Libor +0.3= Libor + 5.8
Next assume the other way rozu bank 4.6 and keshi Co at Libor +0.4 so you get 5 now the most favourable one is the first assumption
Then here they have told that the advantage will be shared by the keshi Co in 70% and rozu bank 30% so deduct that from the borrowing rate choosen by each other
Am I right till here ??? What next to do ?? Please please please jhon help me
Thanks in advanceI think that the following answer to a previous post will explain 🙂
Hi John,
Thank you for your explanation.
Please can you explain under what scenario a swap party (unless it was the originating lender) would know what rate the company took the original loan up at? How would the counter party know the original fixed rate was 5.5% in order to calculate the benefit? Is it realistic for swap parties to restrict benefit participation?
In addition to this, I believe the question gives you all the information required to calculate the effective interest rate if you were to use interest rate futures as a hedge but the answer makes no reference to this? Unless I am mistaken, I believe this is an effective solution as (by my calculations) you get an effective interest rate of 4.42%.
Many thanks,
Sam
Apologies,
Should have RTFQ!
“using either exchange traded March options or OTC swaps offered by Rozu Bank”
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