Company AA and company BB each need $1 million in funds and are quoted the following rates in the fixed and floating markets. AA agrees to borrow at the fixed-rate and BB agrees to borrow at the floating-rate. Show all calculations.

Debt market	AA	BB
Fixed rate funds	5.4%	6.4%
Variable rate funds	BBSW + 2%	BBSW + 2.2%

Required:

a) Structure a swap which allows the two companies to share the differential benefit equally.

b) What fixed rate would AA receive from BB if they negotiated to receive 75% share of the differential?

c) Why would a swap be arranged even if the differential is zero.

d) List and briefly explain the three basic types of swaps.