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Sir for swap in this question as they dont mention so we r comparing both ways,so we r saving .8 when keshi co is taking L+.4 and counterparty 4.6,my question is they should be taking like this before swap or this rate should be after their swap.
And secondly from .8 i could calculate profit before bank for keshi is .56 and counterparty is .24 and after bank charges its .46 for keshi and .14 for counterparty ,but i dont know how to proceed further. Please help.Having worked out the saving to be made (which it seems you are happy with), then subtract this from the interest that they would have been paying if there was no swap available. This gives you what you want to end up with.
Then write down the interest they will be paying before actually swapping.
Then whichever one wants to end up paying floating – have them pay Libor to the other one.
Then calculate the missing figure to make the total equal to the amount you want to end up with – that is the other payment between the parties.(I am sorry but it is difficult to write it all in words – I hope it makes sense. However, it seems that the examiner is more interested in just showing the saving rather than the actual mechanics of ‘who pays who’ 🙂 )
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