Company X borrowed $100M for 5years at a fixed rate but wishes to switch to a floating rate. Company Y borrowed the same amount for the same period at a floating rate, but wishes to switch to a fixed rate. The following rates are available to X and Y, respectively. Both approached FINM Bank for advice on how to transform their exposures and to potentially receive a better deal. As the head of FINM's swap desk, you have designed a swap that gives two thirdsof the gains to Y and the rest to X, and charged 15bps p.a. as commission.

	Fixed Rate (p.a.)	Floating Rate (p.a.)
Company X	6.25%	BBSW+0.6%
Company Y	6%	BBSW-1%

a) All payments within the swap are exchanged via FINM. The floating rate is paid all the way across. What does X receive via FINM within the swap? What does Y receive via FINM within the swap? Explain and support with calculations.

b) By observing the interest rates available to each firm from external funding, comment on the likely relative creditworthiness of each firm. Next, what is a key determinant of how the gains to trade are allocated in reality?

c) The swap from (a) has been set up, and payments are exchanged semi-annually. It is March and there are 16 months left in the swap. The current BBSW is 4% p.a. for all maturities, compounded semi-annually. The 6-month BBSW on the last payment date was 3.8% p.a. When does the next interest rate payment occur? What is the next floating rate interest payment? Is company X long or short in the floating rate bond and what is its bond value?