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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

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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. (8 marks) 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. (3 marks) d) List and briefly explain the three basic types of swaps. (6 marks) (2 marks) 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. (8 marks) 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. (3 marks) d) List and briefly explain the three basic types of swaps. (6 marks) (2 marks)

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