HomeworkLib
Question

Assume the following swap terms: Bank A Bank B Pay 10% LIBOR - 0.6% Receive LIBOR -0.6% 10% Assuming a notional principal of

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

If LIBOR is 10.6%

Bank A  
interest is paid    -10.00%
transaction of swap  
pay dealer fixed interest   -10.00%
receive LIBOR-0.6%= 10.6%-0.6%=   10.00%
  
Net interest (Sum of all transactions) =   0.00%
Notional amount   $10,000,000
Year=   1
Interest = Notional amount * Net interest * t  
$10,000,000   *0%*1
$0.00  
So Net interest for swap transaction is   $0.00
  
Bank B  
interest is paid LIBOR-0.6%= 10.6%-0.6%=   -10.00%
Bank B  
interest is paid LIBOR-0.6%= 10.6%-0.6%=   -10.00%
receive    10.00%
  
Net interest (Sum of all transactions) =   0.00%
Notional amount   $10,000,000
Year=   1
Interest = Notional amount * Net interest * t  
$10,000,000   *0%*1
$0.00  
So Net interest of swap transaction is   $0.00
  
  

If LIBOR is9%
   Bank A  
interest is paid    -10.00%
transaction of swap  
pay dealer fixed interest   -10.00%
receive LIBOR-0.6%= 9%-0.6%=   8.40%
  
Net interest (Sum of all transactions) =   -1.60%
Notional amount   $10,000,000
Year=   1
Interest = Notional amount * Net interest * t  
$10,000,000   *-1.6%*1
-$160,000.00  
So Net interest for swap transaction is   -$160,000.00
  
  
Bank B  
interest is paid LIBOR-0.6%= 9%-0.6%=   -8.40%
receive    10.00%
  
Net interest (Sum of all transactions) =   1.60%
Notional amount   $10,000,000
Year=   1
Interest = Notional amount * Net interest * t  
$10,000,000   *1.6%*1
$160,000.00  
So Net interest of swap transaction is   $160,000.00
  

If LIBOR is 12%

Bank A

transaction of swap

pay dealer fixed interest -10.00%

receive LIBOR-0.6%= 12%-0.6%= 11.40%

Net interest (Sum of all transactions) = 1.40%

Notional amount $10,000,000

Year= 1

Interest = Notional amount * Net interest * t

$10,000,000 *1.4%*1

$140,000.00

So Net interest for swap transaction is $140,000.00

Bank B

interest is paid LIBOR-0.6%= 12%-0.6%= -11.40%

receive 10.00%

Net interest (Sum of all transactions) = -1.40%

Notional amount $10,000,000

Year= 1

Interest = Notional amount * Net interest * t

$10,000,000 *-1.4%*1

-$140,000.00

So Net interest of swap transaction is -$140,000.00

0 0
Add a comment
Know the answer?
Add Answer to:
Assume the following swap terms: Bank A Bank B Pay 10% LIBOR - 0.6% Receive LIBOR...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Suppose that you have entered a 5-year swap to receive Japanese Yen and Pay 1-year Libor...

    Suppose that you have entered a 5-year swap to receive Japanese Yen and Pay 1-year Libor with notional principal of USD 10,000,000. At the time the swap agreement was completed the swap quote was 0.50% bid and 0.60% offered against the 1-year dollar Libor, and the spot rate was JPY100/$ (assume payments are annual). Assume that 1 year has passed. The spot exchange rate is JPY 98/USD. The dealer is quoting the following interest rates on 4-year swaps: 1.50% bid...

  • Under the terms of an interest rate swap, a financial institution has agreed to pay 10%...

    Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and to receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 14 months. The average of the bid and offer fixed rates currently being swapped for three-month LIBOR is 12%) per annum for all maturities. The three-month LIBOR rate one month ago was 11.8% per...

  • Under the terms of an interest rate swap, a financial institution has agreed to pay 10%...

    Under the terms of an interest rate swap, a financial institution has agreed to pay 10% per annum and receive three-month LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 11 months. Suppose the two-, five-, eight-, and eleven-month LIBORs are 11.5%, 11.75%, 12%, and 12.25%, respectively. The three-month LIBOR rate one month ago was 11:8% per annum. All rates are compounded quarterly. What is...

  • 6. A bank will receive T+50 versus Libor or pay T+45 versus Libor. The current 10...

    6. A bank will receive T+50 versus Libor or pay T+45 versus Libor. The current 10 year treasury rate is 1.80 %. For a $100 million, 10-year swap what is the approximate profit that a bank earns by entering into both a fixed rate and an offsetting floating rate swap?

  • Faise QUESTION 21 Boeing has entered into 10 year interest rate swap with Bank America with...

    Faise QUESTION 21 Boeing has entered into 10 year interest rate swap with Bank America with a notional principal of $500 million. Boeing has agreed to pay LIBOR- the floating rate side of the swap, Bank America haségreed to pay a fixed rate of 5.75%. Assume that next year, LIBOR is 6.5%. The net payment at that date will be Boeing pays Bank America $2,500,000 Bank America pays Boeing $5,000,000 Bank America pays Boeing $507,500,000 Bank America pays Boeing $3,750,000...

  • la) Under the terms of a currency swap, a company has agreed to receive a fixed...

    la) Under the terms of a currency swap, a company has agreed to receive a fixed interest rate of 10% per annum on an American dollar loan with a notional principal of $5 million. In exchange, the company will pay a fixed interest rate of 8% per annum on a Dutch Euro Loan with a notional principal of €2.5 million. Net interest payments are exchanged every six months. The swap has a remaining life of thirteen months. The current interest...

  • Polar Ice has entered into a 10 year interest rate swap with Southern Sun with a notional principal of $500 million. Polar Icehas agreed to pay LIBOR – the floating rate side of the swap. Southern Sun...

    Polar Ice has entered into a 10 year interest rate swap with Southern Sun with a notional principal of $500 million. Polar Icehas agreed to pay LIBOR – the floating rate side of the swap. Southern Sun has agreed to pay a fixed rate of 5%. Assume that next year, LIBOR is 5.5%. The net payment at that date will be: a. Polar Ice pays Southern Sun $5,000,000 b. Polar Ice pays Southern Sun $750,000 c. Polar Ice pays Southern...

  • QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a...

    QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a notional principle of Max. Marks 2+1] $200 n Samsung agrees to pay a 3-month LIBOR rate on the same principal. In addition, the payments are exchanged every three months, andthe6%is quoted with quarterly compounding. Following Table shows the LIBOR Samsung (complete the Table...

  • Consider the following swap. Party A will pay after 6 months (182 days) a fixed rate...

    Consider the following swap. Party A will pay after 6 months (182 days) a fixed rate 7.50 percent per annum on a semiannual basis, and receives from Party B LIBOR + 40 basis points. The current six-month LIBOR rate is 6.75 percent per annum. The notional principal is 50 million dollars. 2) a) Compute the fixed and floating rate payments.    2) b) What is the net payment and which party makes it?   

  • 4. A French wine maker is considering a currency swap that will call for the firm...

    4. A French wine maker is considering a currency swap that will call for the firm to pay dollars and receive Euros. The dollar notional principal will be $100 million. The swap calls for semiannual payments with a 180/360 adjustment. The current exchange rate is $1.60/ The term structure of the dollar and Euro LIBOR on the day of swap initiation is as follows # of days until payment | Dollar LIBOR ( Euro LIBOR 180 360 540 720 7.00...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT