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1. Explain why a bank is subject to credit risk when it enters into two offsetting swap contracts.

2. Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

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Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Design a swap that will net a bank, acting as intermediary, 0.2% per annum and will appear equally attractive to X and Y.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91991872

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