ABC Company and XYZ Company need to raise funds to pay for capital improvements at their manufacturing plants. ABC Company is a well$-$ established firm with an excellent credit rating in the debt market; it can borrow funds either at an $11\%$ fixed rate or at LIBOR $+1\%$ floating rate. XYZ Company is a fledgling start$-$up firm without a strong credit history. It can borrow funds either at a $10\%$ fixed rate or at LIBOR $+3\%$ floating rate

a$.$ Is there an opportunity here for ABC and XYZ to benefit by means of an interest rate swap?

b$.$ Suppose you've just been hired at a bank that acts as a dealer in the swaps market, and your boss has shown you the borrowing rate information for your clients ABC and XYZ$.$ Describe how you could bring these two companies together in an interest rate swap that would make both firms better off while netting your bank a $2\%$ profit