On December 31, 2005, Company
Financial Institutions and Markets
1. On December 31, 2005, Company A and Company B enter into a five year swap with the following terms: Company A pays company B a fixed amount equal to 7% per annum on a notional principal of $50 million. Company B pays company A an amount equal to one year LIBOR+2% per annum on a notional principal of $50 million. Show the notional cash flow between the parties for next 5 years if LIBOR is
December’2006- 5%
December’2007- 5.2%
December’2008- 4.5%
December’2009- 4.8%
December’2010- 5.5%
2. India is an agricultural country with many farmers who are exposed to fluctuations in pricing over a period of time which makes them skeptical. Is there any instrument in financial market which can protect farmers from fluctuations in prices, if yes explain how the farmers can be benefitted using an example.
On December 31, 2005, Company
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On December 31, 2005, Company