Q2 Dec 14 Keshi Co

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June 4, 2016 at 10:55 pm #319462
Anonymous
Inactive
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I am confused how the interest rate swap works in this question.
I don’t understand why the answer says that Keshi will borrow at L+0.4% but then receive only LIBOR – should they not receive LIBOR +0.30%?
How is the effective borrowing rate figure worked out?
Is the total possible benefit of 0.8% simply the difference between the basis differential?
Sorry SWAPS really confuse me!
June 5, 2016 at 8:38 am #319525
John Moffat
Keymaster
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They can settle up between themselves in whatever way they want – it does not have to be that way.
What matters is the final net result.
If you watch my free lecture on swaps then I do explain what is happening and how to sort it out 🙂
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