Absolute Co. and Beta Co. each need $2 million in funds and are quoted the following rates in the fixed and floating markets. Absolute Co. agrees to borrow at the fixed-rate and Beta Co. agrees to borrow at the floating-rate. Using the rates given below, answer the following questions. Show your calculations. (Total 13 marks)

Absolute Co. fixed: 5.4 per cent; floating: BBSW + 2 per cent;

Beta Co. fixed: 6.4 per cent; floating: BBSW + 2.2 per cent.

A. How much can each company reduce their borrowing rates by, if they agree to share the benefit equally? (2 marks)

B. Structure a swap which allows each company an equal share of the benefit. Use the table belowProvide details of the swap you have structured in a table. Include amounts each pays the market and the other, amounts received from the other and the net result. (10 marks)

C. How much would Absolute Co. receive from Beta Co. if they negotiated to get 0.1% more than Beta Co.? (1 mark)