Companies A and B wish to borrow £5 million for a period of 3 years. The following table summarises the interest rates of the deals offered to each company:

Company	Fixed	Floating
A	3.4%	LIBOR+0.25%
B	4.75%	LIBOR+1%

Company A would like to borrow at floating interest rate while company B would like to borrow at fixed rate. A financial institution has offered to design a swap deal and it charges 0.1% for that service. Answer the following questions:

a. Explain the comparative advantage position for both companies. [5 marks]

b. Explain clearly how the swap deal would work if the comparative advantage is shared equally between both parties. Illustrate the deal with a diagram and explain what is the final outcome for each party and why it is beneficial for both.