Question

米什金货币金融学的问题

Xavier Manufacturing and Zulu Products bothseek funding at the lowest possible cost. Xavier would prefer the flexibility of floating rate borrowing, whileZulu wants the security of fixed rate borrowing. Xavier is the more credit-worthy company.They face the following rate structure. Xavier, with the better credit rating,has lower borrowing costs in both types of borrowing.

Xavier Zulu

Credit rating AAA BBB

Fixed rate cost of borrowing 8% 12%

Floating rate cost of borrowing LIBOR+1% LIBOR+2%

Xavier wants floating rate debt,so it could borrow at LIBOR+1%. However it could borrow fixed at 8% and swapfor floating rate debt. Zulu wants fixed rate, so it could borrow fixed at 12%.However it could borrow floating at LIBOR+2% and swap for fixed rate debt. Whatshould they do?

Answer 1

　　Assumptions 　 Xavier 　 Zulu

　　Credit rating 　 AAA 　 BBB

　　Prefers to borrow 　 Floating 　 Fixed

　　Fixed-rate cost of borrowing 　 8.000% 　 12.000%

　　Floating-rate cost of borrowing:

　　LIBOR (value is unimportant) 　 5.000% 　 5.000%

　　Spread 　 1.000% 　 2.000%

　　Total floating-rate 　 6.000% 　 7.000%

　　

　　Comparative Advantage in Borrowing 　 Values

　　Xavier's absolute advantage:

　　in fixed rate borrowering 　 4.000%

　　in floating-rate borrowing 　 1.000%

　　Comparative advantage in fixed rate 　 3.000%

　　

　　One Possibility 　 Xavier 　 Zulu

　　Xavier borrows fixed 　 -8.000% 　 ---

　　Zulu borrows floating 　 --- 　 -7.000%

　　Xavier pays Zulu floating (LIBOR) 　 -5.000% 　 5.000%

　　Zulu pays Xavier fixed 　 8.500% 　 -8.500%

　　Net interest after swap 　 -4.500% 　 -10.500%

　　

　　Savings (own borrowing versus net swap):

　　If Xavier borrowed floating 　 6.000%

　　If Xavier borrows fixed & swaps with Zulu 　 4.500%

　　1.500%

　　

　　If Zulu borrowes fixed 　 　 　 12.000%

　　If Zulu borrows floating & swaps with Xavier 　 　 　 10.500%

　　1.500%

　　

　　The 3.0% comparative advantage enjoyed by Xavier represents the opportunity set for improvement for both parties. This could be a 1.5% savings for each (as in the example shown) or any other combination which distributes the 3.0% between the two parties.

　　
　　

Answer 2

这确实难。。。。