From the course: Derivatives Fundamentals
Join today to access over 25,200 courses taught by industry experts.
Benefits of using interest rate swaps
From the course: Derivatives Fundamentals
Benefits of using interest rate swaps
- [Presenter] We're going to finish this "Introduction to Derivatives" course by looking at one more interest rate swap example so that we can see the benefits to both counterparties of entering into an interest rate swap. So let's say that two companies can borrow at the following rates. Company A can borrow fixed at 5% and floating at LIBOR, whereas Company B can borrow at 6% fixed or LIBOR plus 50 basis points floating. Before we continue, just make a note that you can see that Company A can borrow fixed and floating more cheaply than Company B. The key thing also though to note is that Company A can borrow fixed at 100 basis points or 1% less than Company B, whereas for floating, Company A can borrow at only 50 basis points less than Company B. We also want to assume that Company A wants to borrow at a floating rate and Company B wants to borrow at a fixed rate. The question is how can we set up an interest rate swap so that it is mutually beneficial to both parties? We've already…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.