A swap bank quotes the following pricing schedule for Polish zloty coupon swaps.
Coupon Swap Pricing Schedule (Polish zloty)
|
Maturity
|
Bank Pays Fixed Rate
|
Bank Receives Fixed Rate
|
Current TN Rate
|
|
4 years
|
4 yr TN sa + 24bps
|
4 yr TN sa + 78bps
|
7.98%
|
This schedule assumes nonamortizing debt and semiannual rates (sa). Quotes are against 6-month LIBOR Polish zloty flat.
TN = Polish Treasury note rate.
a. Ford Motor Company has 4-year floating rate zloty debt at 6-month LIBOR plus 45 bps. Ford wants to swap into fixed rate zloty debt. Describe Ford's floating-for-fixed zloty coupon swap.
b. Polish Motors (PM) has 4-year fixed rate zloty debt at 9.83 percent (BEY). PM wants to swap into floating rate zlotys. Describe PM's fixed-for-floating zloty coupon swap.
c. What does the swap bank gain from these transactions?