Ossie Ltd is about to establish a new funding arrangement.It is able to borrow in either the fixed-rate or floating-rate debt markets.The company wishes to lower its cost of borrowing by entering into a swap transaction with Battler Ltd.Based on the following data for the two companies,in which interest rate market will Ossie Ltd borrow,and swap into?
$$\begin{array} { | l | l | }
\hline \text { Ossie Ltd } & \text { fixed rate } 10.8 \% \text { per annum; floating rate BBSW } + 0.3 \% \text { per annum } \
\hline \text { Battler Ltd } & \text { fixed rate } 11.5 \% \text { per annum; floating rate BBSW } + 1.7 \% \text { per annum } \
\hline
\end{array}$$

Question

Ossie Ltd is about to establish a new funding arrangement.It is able to borrow in either the fixed-rate or floating-rate debt markets.The company wishes to lower its cost of borrowing by entering into a swap transaction with Battler Ltd.Based on the following data for the two companies,in which interest rate market will Ossie Ltd borrow,and swap into?
$$\begin{array} { | l | l | } 
\hline \text { Ossie Ltd } & \text { fixed rate } 10.8 \% \text { per annum; floating rate BBSW } + 0.3 \% \text { per annum } \
\hline \text { Battler Ltd } & \text { fixed rate } 11.5 \% \text { per annum; floating rate BBSW } + 1.7 \% \text { per annum } \
\hline
\end{array}$$

Quizplus · Accepted Answer

Ossie Ltd can take advantage of the lower floating rate in the floating-rate debt market and swap into a fixed rate with Battler Ltd, which will lower its cost of borrowing.

Ossie Ltd Is About to Establish a New Funding Arrangement