Interest Rate Swap Case Essay Example

Interest Rate Swap Case Paper Goodrich-Rabobank Interest Rate Swap In 1983, both B. F. Goodrich and Rabobank needed to execute external financing in order to raise 50 million dollars for ongoing operations. Goodrich wanted to raise the money through debt financing, but because their bonds were BBB- rated, they would have to pay a steep interest rate for a fixed rate. However, the Solomon brothers had an idea. Goodrich could borrow with a floating rate that was tied to LIBOR and then swap interest payments with a Euromarket bank that had raised funds in the fixed rate Eurobond market. A London bank approached Rabobank and proposed a large fixed rate Eurobond issue with the intention of swapping interest payments with a US corporation. Goodrich offered a 50 million dollar, noncallable 8 year bond, semiannual payments that will pay the LIBOR rate + 50 basis points. On the same day Rabobank issued a 50 million dollar, noncallable 8 year bond with an annual coupon fixed at 11 percent. The two issuers executed a swap with the Morgan Guaranty Bank as an intermediary guarantor. Goodrich agreed to pay Morgan bank $5. million once each year for 8 years to cover the 11% fixed coupon. Morgan bank agreed to pay Goodrich 8 years of semiannual payments. It would be the LIBOR minus a discount. Similarly, Morgan bank agreed to pay Rabobank 5. 5 million once a year for 8 years and Rabobank agreed to pay the Morgan bank the 8 years of semiannual payments at LIBOR – x. Morgan also received from Goodrich a one-time initial fee of $125,000 and an undisclosed annual fee for the each of next 8 years. Goodrich has to pay out the LIBOR + . 5% and gets the LIBOR – x and then subtract the 10. % which is the fixed rate for AAA Eurobonds that Rabobank will have. So you get that Goodrich will receive x + 11. 2%. Morgan has to pay LIBOR – x and get the LIBOR – y + 10. 7% 10. 7%. After doing the math, Morgan receives x-y in total fees and they could be anywhere between 8 and 37. 5 basis points. Rabobank will get y – LIBOR. After looking at figure 3, Goodrich would have had a fixed rate at about 12. 5% for the maturity they were looking for. Therefore, Goodrich will save 1. 3% x, while Rabobank will end up saving y – 1. 8% on their interest rate. We will write a custom essay sample on Interest Rate Swap Case specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Interest Rate Swap Case specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Interest Rate Swap Case specifically for you FOR ONLY $16.38 $13.9/page Hire Writer After breaking it down further by using the figures in the case, it can be assumed that y comes out to be 20 basis points and x is 100 basis points. Plugging those values back into the original equations you can deduce that Goodrich saves about 30 basis points because they will only be paying 12. 2%. Rabobank will save about 20 basis points and Morgan will collect the original $125,000 and then 75 basis points in fees. After adding up all of the savings, it comes out to be 1%. This is an attractive deal to the savings bank. With organizing this swap, they end up earning a good amount of money. They will have a good amount of administrative fees in order to receive all of the money from the swap and then proceed to pay out the right amount each period and keep up with the LIBOR rates to adjust the floating rate note. However, with collecting the original $125,000 and then gaining the 75 basis points in fees, they will be able to cover all of their expenses in the swap and make this a profitable investment. For the Goodrich and Rabobank this is a win-win situation for them. Because of entering the swap and analyzing the numbers from the case, both of them will end up saving money. The rates they would have had if they sold their notes without swapping would have been higher than what they end up having to pay now. Even with having to pay fees to Morgan, saving 20 to 30 basis points is a big deal. The only people that this could be a loss for are the investors that are buying the notes. They could be viewed as not as well off because they are not getting as good of a rate on the notes that they bought. However, both of the investments are still very good and pay close to the standard amount.

Two problems caused Civil war essays

Two problems caused Civil war essays The two of the problems that caused the Civil War were secession and slavery which Abraham Lincoln eventually started to send soldiers and started the civil war. Even though there were still many problems left after the war, the Federal government came up with a number of solutions to them. Due to the different philosophy between the North and the South, following by the problems in the Constitution, the North and South started to have conflict. The democratic Southerner supported state rights and was not conservatives. The North supported a strong central government and was more conservative. The North which was the Federalist had built a standing army and so the people had to pay tax for the army. However the South didnt want to have a standing army because they were afraid that the army will be united to go against state rights. Also the Southerner didnt want to pay tax for the army. In the congress, there were conflicts between the Jeffersonian and Federalist. The most obvious conflict was when the Alien Act came about. This action was made to go against the Jeffersonian who helped the French and Irish immigrants to U.S. So the conflict between the North and the South was one of the reasons which lead to the separation of North and South and finally the South lose in the Civil war and the North look over the power. Abraham Lincoln, as the president of the United States supported the Federal government in opposite, Thomas Jefferson opposed from the South, The South suggested that there were problems in the constitution and wished to make up for their own. For instance, the problem of slavery werent mentioned in the constitution. In the constitution, there werent anything about the rights of slavery, the control of slavery... Until the amendments came about, then the right of slavery was then mentioned. The biggest problem of slavery was that the Southerners had many plantations and were mostly farmers or...

Legal Immigrants and their Influence on United States of America Research Paper

Legal Immigrants and their Influence on United States of America - Research Paper Example Economy, Social Security, Culture and Education are four sectors which are being impacted positively by these immigrants. This essay would further provide the advantages of legal immigration to the United States of America. It would also provide with the arguments that the opponents propose in response to the positive impacts that these immigrants bring along with them. Impact on Economy Several studies have been conducted to find out the effect of legal immigrants on the economy of the United States. A report â€Å"Raising the floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform† proposes that if the legal workers are allowed to enter the territory of United States then the GDP of the country can be increased by an estimated $1.5 trillion. The legal immigrants are helping to improve the economy of the United States from a rational perspective. Studies done in different states have showed that the immigrants have paid great amount of taxes to the government and this has improved the economy of the United States. The legal immigrants also work in departments of the United States where the natives do not want to work. These legal immigrants bring skills along with them and work in different sectors. These immigrants take over different jobs and help the economies of scale to build up so that the cost of the production is decrea sed. In other words these immigrants are bringing a positive influence on the whole economy of United States (Immigration Policy Center 2011). Impact on Social Security The impact of immigrants on the social security can only be analyzed if the roots of the system are understood. The Social Security System is a type of system which works to benefit the retirees. The system works on the money which is being received through the taxes paid by the workers. It is here that the role of immigrants comes into play. As the immigrants tend to take up jobs they form an enormous portion of the workforce and hence these immigrants help to pay for the taxes which add up to the social securities. The immigrants enter into the United States when they are the peak of their working years hence these immigrants cannot benefit from the Social Security System for at least three to four decades. However they start paying for the taxes as soon as they take up the jobs which mean that they are providing t he benefits to the retirees. The 2004 Trustees report puts forward that â€Å": â€Å"The cost rate decreases with increasing rates of net immigration because immigration occurs at relatively young ages, thereby increasing the numbers of covered workers earlier than the numbers of beneficiaries† (Trustees Report 2004). The United States of America consists of an ageing population who take benefits from the Social Security System. It is these immigrants who help to cater to the demands of the ageing population of America by providing the taxes to the social security (Fienleb & Warner 2005). Thus it can be said that immigration is greatly helping the social security funds and the ageing population of the United States. Impact on Culture Immigrants are also believed to benefit the culture of