Company X wants to borrow $10,000,000 floating for 1 year; company Y wants to borrow £5,000,000 fixed for 1 year. The spot exchange rate is $2 = £1 and IRP calculates the one-year forward rate as $2.00 × (1.08)/£1.00 × (1.06) = $2.0377/£1. Their external borrowing opportunities are:

 

	$ Borrowing				£ Borrowing
	Cost				Cost
Company X	$	8	%		£	7	%
Company Y	$	9	%		£	6	%

 

A swap bank wants to design a profitable fixed-for-fixed currency swap. In order for X and Y to be interested, they can face no exchange rate risk.

What must the values of A and B in the graph shown above be in order for the swap to be of interest to firms X and Y?