Structured Interest rate Swap4.1 Your allocated company is currently considering a proposal from an Investment Bank to decrease their cost of funding by entering into a structured interest rate swap. Details of theswap and the cover letter from the investment bank have been supplied individually to eachgroup.You need to address the following questions as part of your analysis:
· Demonstrate your understanding of the structured swap by discussing the characteristics ofthe swap in your own words.
· Analyse the cash flows of the swap discussed in the investment bank proposal.
· Estimate the net cost of borrowing, if the swap was to proceed, for the debt and the swap referred to in the investment bank proposal.
· Using the data supplied regarding historical interest rate yields, perform a quantitative analysis using appropriate risk control techniques to assess the risk embedded in the structure.
· Discuss whether your allocated company should proceed with the proposal.