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1. As a swap broker, you are in touch with Banks A and B. In the fixed rate market, the annual yield offered is
1. As a swap broker, you are in touch with Banks A and B. In the fixed rate market, the annual yield offered is 7% for Bank A and 8% for Bank B. In the floating-rate market, on the other hand, the effective annual yield offered is LIBOR+2% for Bank A and LIBOR+1% for Bank B. If Bank A wants to invest in a fixed rate asset and Bank B wants to invest in a floating rate asset, illustrate how you can set up an interest rate swap that would look equally attractive to both banks and leave a 0.20% margin to your brokerage firm.
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