A thrift has funded 10% fixed-rate assets with varable rate liabilites at LIBOR+2 (L+2) percent. A bank has funded variable rate assets with fixed rate liabilities at 6%. The bank's variable rate assets earn LIBOR +1 (L+1) percent. The thrift and the bank have reached agreement on an interest rate swap with the fixed rate swap payment at 6% and the variable rate swap payment at LIBOR.
1) What will be the net after swap cost of funds for the thrift if the cash market liabilities are included in the analysis?
2) What will be the net after swap yield on assets for the bank?
3) Assume that the swap is for two years and that LIBOR is 5.25% in year one and 6.25% in year two. What will be the net swap cash flow each year if the notional value of a swap is $100 million?
4) Assume that the thrift variable rate liabilites are CDs indexed to some domestic rate. Which of the following statements describes the hedge characteristics of the above example?