Page 185 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Interest Rate Risk management

Example 6

(b)

Actual borrowing (LIBOR + 0.10%)

Receive from bank LIBOR

Payment to bank (ask) (5.90%)

Net interest rate after the swap (6.00%)

Open market cost – no swap (6.05%)

Saving 0.05% or 5 basis points

Illustrations and further practice

Look at the illustrations in Chapter 13 on Swaps and try TYU 10 to 13

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