This is a swap market phenomenon.

1. What is the swap market?

The swap market does not trade exchange-style financial products. Therefore, the form, amount, maturity date, etc. of the swap transaction are completely determined by the needs of the customer. It is a customized transaction method. As long as both parties to the swap are willing, they can start from scratch. From the swap content to the swap form, everything can be designed completely as needed. The resulting swap transaction can fully meet the specific needs of the customer. Therefore, the swap transaction is better than Other financial instruments traded on exchanges are better suited to investor needs. The counterparty to the swap can choose both the size of the transaction and the length of the term.

2. What is a swap transaction?

Swap transactions refer to the exchange of debts in the same currency and debts in different currencies through financial intermediaries. Swap trading is another typical innovative business in the financial market after the emergence of financial futures in the early 1970s. Swap transactions have developed from quantitative to qualitative aspects, and an interbank trading market has even formed. In this market, if one party to a swap transaction proposes certain swap conditions, the other party can immediately accept the swap under corresponding conditions. By using swap transactions, ideal funds can be raised based on different interest rates, foreign exchange or capital market restrictions in different periods. Therefore, from a certain perspective, the swap market is the best financing market. Swap transactions not only add new value-preserving tools to the financial market, but also open up a new realm for the operation of the financial market.

3. Determine and borrow the principal

Company A borrows at a fixed interest rate, and Company B borrows at a floating interest rate

Interest rate swap, (4.5% + 6 Monthly preferential interest rate + 1.5%) - (5.0% + 6-month preferential interest rate + 0.5%) = 0.5%

Swap rate allocation intermediary 0.1%; Company A 0.2%; Company B 0.2 %

Company A’s cost 6-month preferential interest rate +1.5%-0.2% = 6-month preferential interest rate +1.3%

Company B’s cost 4.5%-0.2% = 4.3 %

Pay a floating interest rate

Pay a fixed interest rate of 5% 6-month preferential interest rate +1.3% 6-month preferential interest rate +0.5% 6-month preferential interest rate +0.5% : Intermediary - Company B

Company A, intermediary fixed interest rate 5% fixed interest rate 4.3%

Interest spread: A pays interest spread to the intermediary = (5% + 1.3% - 5% = 1.3%) 1000 x 1.3% x 1/2

The interest rate paid by the intermediary to Company B = (5% + 0.5% - 4.3% = 1.2%) 1000 x 1.2% x 1/2