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June 2014 Question # 1 Part (b)

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June 2014 Question # 1 Part (b)

Can Any one tell me how CMC could benefit from the SWAP offered by Pecunia Bank?

Question Data
A 4 year loan of CHF 60,000,000 taken from the bank on which interest will be payable fixed rate of 2.2% or a floating annual rate based on yield curve rate plus 0.40%. The principal will be paid at the end of 4th year.

Bank Offer
An interest rate SWAP contract with the counter party where counter party can borrow at annual floating rate based on yield curve rate plus 0.8% or an annual fixed rate of 3.8%. Bank would charge a fee of 20 basis point each to act as the intermediary of the SWAP. Both party will be benefited equally.

Do not copy past the answer. Logical answer is required.

November 17th 2014 AN ACCA USER 160 Points

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