Thank you Ed for sharing. But I am confused by the conclusion. Why not the bank pay cash flow based on 6-month LIBOR( the basis for assets) and receive cash flow based on 1-month LIBOR + premium?
This is SUCH an incomplete demonstration. Yes, you showed us the lead-up to why a basis swap might be sought out... but then ended the video before showing a demonstration of the basis swap in action with the counterparty.
Ah bless you Ed. Basis swaps always confused me in University!
Thank you Ed for sharing. But I am confused by the conclusion. Why not the bank pay cash flow based on 6-month LIBOR( the basis for assets) and receive cash flow based on 1-month LIBOR + premium?
I agree, I think that should be the case.
In absolute percentage term bank will pay 0.13% plus some premium and receive higher rate of 0.17%.
If the bank does it , it will lose money
This is SUCH an incomplete demonstration. Yes, you showed us the lead-up to why a basis swap might be sought out... but then ended the video before showing a demonstration of the basis swap in action with the counterparty.
Very well said