TABLE 15.2
Use the information to answer following question(s).

-Refer to Table 15.2. Which of the following swap agreements could work for Shell and Merck with Barclay's as the facilitating bank?
A) Merck borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Shell borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's.
B) Shell borrows at a fixed rate of 6% and then enters into a "receive variable, pay fixed" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's.
C) Shell borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's.
D) None of the above would satisfy both Shell and Merck.

Question

TABLE 15.2
Use the information to answer following question(s).
 
-Refer to Table 15.2. Which of the following swap agreements could work for Shell and Merck with Barclay's as the facilitating bank?
A) Merck borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Shell borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's. 
B) Shell borrows at a fixed rate of 6% and then enters into a "receive variable, pay fixed" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. 
C) Shell borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's. 
D) None of the above would satisfy both Shell and Merck.

Quizplus · Accepted Answer

Shell can borrow at a fixed rate of 6% and then enter into a "receive fixed, pay floating" interest rate swap with Barclays. Merck can borrow at a variable rate of LIBOR + 1% and then enter into a "receive variable, pay fixed" interest rate swap with Barclay's. This satisfies both the requirements of the companies and is a possible swap agreement with Barclays as the facilitating bank.

TABLE 15.2 Use the Information to Answer Following Question(s)