Company AAA and company BBB each need $1 million in funds and are quoted the following rates in the fixed and floating markets. AAA agrees to borrow at the fixed-rate and BBB agrees to borrow at the floating-rate. Show all calculations. Debt market AAA BBB Fixed rate funds 4.4% 5.4% Variable rate funds BBSW + 1.2% BBSW + 1.4% Required:

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

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

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