ExpertACCA · Question 18.4 · Risk Management
CASE 3: GLOBALBEAN CO
GlobalBean Co is a coffee exporter based in the US (reporting in USD). The company frequently sells coffee beans to European buyers, invoicing in Euros (EUR). GlobalBean expects to receive EUR 500,000 in three months. The company is concerned about foreign exchange risk and interest rate risk on a floating rate loan it holds.
GlobalBean has a $2 million floating rate loan linked to SOFR. The company fears interest rates will rise and wishes to use an Interest Rate Swap to fix its borrowing costs. How should GlobalBean structure the swap with a bank?
CASE 3: GLOBALBEAN CO
GlobalBean Co is a coffee exporter based in the US (reporting in USD). The company frequently sells coffee beans to European buyers, invoicing in Euros (EUR). GlobalBean expects to receive EUR 500,000 in three months. The company is concerned about foreign exchange risk and interest rate risk on a floating rate loan it holds.
GlobalBean has a $2 million floating rate loan linked to SOFR. The company fears interest rates will rise and wishes to use an Interest Rate Swap to fix its borrowing costs. How should GlobalBean structure the swap with a bank?
Answer options:
Pay a floating rate to the bank and receive a fixed rate from the bank.
Pay a fixed rate to the bank and receive a floating rate from the bank.
Exchange the $2 million principal with the bank at the start and end of the swap.
Buy an interest rate floor from the bank.
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