Suppose a Bank Can Borrow Five- Year Fixed- Rate Funds

question 15

True/False

Suppose a bank can borrow five- year fixed- rate funds at 9% p.a. and floating rate at BBR (bank bill rate). Assume a company must pay 11% fixed and (BBR + 2%) for floating. Then there is no scope for a profitable swap because the bank is better off in both markets going it alone.

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Definitions:

Investment Opportunity

A potential venture or asset that presents the possibility for financial growth or returns.

ROI

Return on Investment, a financial ratio indicating the profitability of an investment relative to its cost.

Combined ROI

A metric that calculates the total return on investment from multiple investments or business units combined.

Residual Income

The amount of income that an individual or company has after all personal debts and expenses have been paid.