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2. Assume that two firms, one considered a high credit risk (HCR) and the other a low credit risk (LCR), are considering an interest

2. Assume that two firms, one considered a high credit risk (HCR) and the other a low credit risk (LCR), are considering an interest rate swap. Each can borrow at the following rates: Fixed Rate Variable Rate LCR 8% LIBOR + 1% HCR 12% LIBOR + 3% Parts (a), under what conditions would these two firms enter into a swap? Part (b), how would you construct a swap for these two firms?

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