A bank has made a loan of 100m at 8 per annum the bank, Ask an Expert

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A bank has made a loan of 100m at 8% per annum. The bank enters into a total return swap under which it will pay the interest on the loan plus the change in the marked-to-market value of the loan, and in exchange the bank will receive LIBOR + 50 basis points. Settlement payments are made annually. Illustrate the swap in a relevant diagram. What is the cash flow for the bank on the first settlement date if the mark-to-market value of the loan falls by 2% and LIBOR is 4%?

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Financial Management, Finance

Category:- Financial Management
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