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Hello sir,
I really like your method you taught in your lectures on how to do swaps
The thing I’d like clarification on is how do we determine what is the preferred method of a company to borrow?
The fixed market or the variable market? This is easier when the question has the Variable rate given, i can then work out whats cheapestBut in questions where im not given the V rate, what do i do?
For eg in question, Buryecs MJ17,
I assumed they would Buryecs would do its own borrowing at fixed rate of 4%,
But i read one of the answers in which you say Buryecs does its own borrowing in the variable marketThis changes how to arrive at the end result, as im unable to calculate the missing figure which is correct
This question gives the fixed and the variable rates for both Buryecs and for the counter-party.
The requirement asks for the saving made by using a swap compared with borrowing directly in Wirtonia.
Borrowing in Wirtonia is at floating rate. If they borrowed directly they would pay bank rate + 0.6%.Therefore a swap will involve borrowing in the eurozone and paying 4.0% and then swapping with the counterparty so as to end up paying floating.
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