5. A mortgage company (Party E) has just lent $1 million for five years at 12% with annual payments, and it pays a deposit rate that equals LIBOR + 1% . With these rates, the company would lose money if LIBOR exceeds 11% . This vulnerability prompts the mortgage company to enter an interest rate swap with Party F. This swap agreement covers a five-year period and involves annual interest payments on a $1 million principal amount. Party E agrees to pay a fixed rate of 12% to Party F. In return, Party F agrees to pay a floating rate of LIBOR + 3% to Party E. Determine an annual net cash flow available for the mortgage company.

6.The current spot rate for the Polish zloty is 2.5 zlotys per dollar or $0.40 per zloty. Party G has access to zlotys at a rate of 7%, while Party H must pay 8 % to borrow zlotys. On the other hand, Party H can borrow dollars at 9%, while Party G must pay 10% for its dollar borrowings. Party G wishes to obtain $10 million in exchange for 25 million zlotys, while Party H wants to obtain 25 million zlotys in exchange for $10 million. How can these two parties achieve a lower borrowing rate?