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Chapter 12

Receive swap Receive GBP
interest from bank 0.525m
(5.25% × GBP
10m)

Pay interest on Pay GBP 0.525m
original borrowing
(5.25% × GBP
10m)

Swap back Pay EUR 13m to
principals (at swap the bank and
rate of GBP1 = receive GBP 10m
EUR 1.30)

The net result is that Smiths Co has the use of the EUR 13 million for the year,
and effectively pays floating rate interest on this amount (in EUR) at LIBOR +
0.50%.

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