Suppose that Firm A as well as Firm B want to borrow 1 0 0 million euros.
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Question:
Suppose that Firm A as well as Firm B want to borrow million euros. The best offers that they have got from banks are following suppose that the offers differ only by the interest rate:
Fixed Rate Loan Floating Rate Loan
Firm A month EURIBOR
Firm B month EURIBOR
Describe the swap deal between Firm A and Firm B which would benefit both, Firm A and Firm B equally.
Consider that Firm A prefers floating rate, while Firm B prefers fixed rate. Identify clearly, which firm will borrow from the bank at fixed rate, and which firm will borrow from the bank at floating rate? Thereafter describe, how would the swap look like what interest rate will be received from the counterparty and what
interest rate will be paid to the counterparty of swap transaction
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