Companies A and B have been offered the following rates per annum on a $20 million five-year loan:

Company A: Fixed Rate 10% , Float Rate LIBOR+ 0.1%

Company B: Fixed Rate 12% , Float Rate LIBOR+0.8%

Company A requires aq floating rate loan; Company B requires a fixed-rate loan. Both companies decided to use SWAP contract to manage risk.

The following is a design of swap that nets a bank, acting as intermediary 0.1% per annum and appears equally attractive to both companies. a,b,c,d stand for rates

1. which market company A has comparative advantage in?

2. Why do you think company A requires a floating-rate loan?

3. In the design above, please identify the rates for a,b,c,d?