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Hi John,
Query regarding the answer for the Swap calculation part of question A. I don’t understand why it says from swap, Keshi receives LIBOR, when the question says that the Bank are offering LIBOR+30bp under the Swap. Could you please clarify?
Thanks,
Have you watched my free lectures on swaps?
Swapping does involve borrowing the opposite of what is required (i.e. fixed instead of floating, and vice versa), and swapping the payments. But they then need to settle up between them in order to share the resulting benefit (in this case Keshi is to get 70% on the benefit as per the question).
There are various ways in which they can settle up (as I explain in my lectures) but the most common is for one party to pay Libor to the other, and for the other party to pay across the fixed interest to balance it.
I hadn’t as the previous Swap questions I’ve come across I was fine with. This question shows I need to revise the topic so I will watch your lectures.
Thank you for responding
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