Bank 1 can issue five-year CDs at an annual rate of 11 percent fixed or at a variable rate of LIBOR + 2 percent. Bank 2 can issue five-year CDs at an annual fixed rate of 13 percent or at a variable rate of LIBOR + 3 percent. (LG 24-5)

a. Is a mutually beneficial swap possible between the two banks?

b. What is the comparative advantage of the two banks?

c. What is an example of a feasible swap?

The following problems are related to Appendix 24A, 24B, and 24C materials.

AppenduxLO1