Companies A and B face the following borrowing rates:

Compagnie	C$ fixed rate	Floating rate
A	7,0%	LIBOR + 5%
B	8,5%	LIBOR + 1%

Company A wants to pay a floating rate in while company B wants to pay a fixed rate in C$. Build a swap that gives the intermediary bank a net profit of 0.5% per year. Make sure that the swap is equally advantageous for both companies and that the exchange risk is assumed by the bank.

What is the total gain of the swap?

1. O 3%
2. O 1%
3. O 1,5%
4. O 2%
5. O 2,5%
6. O 0,5%

What is the net of the parties?

1. OA: L+0.25 and B: 8.25% once the swap is in place
2. OA: 7% and B: L+1% once the swap is in place
3. OA: L and B: 8% once the swap is in place
4. OA: 6.5% and B: L+0.5% once the swap is in place
5. none of the above

What is the best explanation to explain that the bank best assumes the exchange rate risk?

1. O In a currency swap, the notional is exchanged
2. O Flows denominated in Pounds Sterling cancel each other out for A
3. O The bank must use the exchange rate to consolidate its flows
4. OB pays both in Dollars and Pounds
5. O None of the above