BFN3144 FINANCIAL DERIVATIVES 21 OCTOBER 2019 QUESTION 4 (25 MARKS) (a) Diagram below illustrates an interest rate swap between M&N Ltd. and Jeck Ltd. Fixed rate: 6% M&N Ltd. M& NL:a. Flat rate * - deck is Jeck Ltd. Floating rate: LIBOR+0.5% (i) Explain why companies use interest rate swap. (5 marks) (ii) If the notional amount is US$50 million and the 1-year LIBOR rate is 5%, calculate the net payment between the two parties and state which party is the payer. (10 marks)