Company XX can borrow USD 20 million at a fixed interest rate and at floating rates for 2 years from Bank A. XX would to borrow at fixed rates on a semi-annual basis. Bank A offers the following pricing schedule for 6-month US dollars LIBOR, where the rates are mid-rates:

Bank As Pricing Schedule (2 years) for XX
Fixed interest rate per annum	Floating interest rate per annum
8 per cent	USD LIBOR + 24 basis points

Bank A takes a bid-offer spread of 40 basis points.

Company YY can borrow USD 20 million at a fixed interest rate and at floating rates for 2 years from Bank B. YY would like to borrow at floating rates on a semi-annual basis. Bank B offers the following pricing schedule for 6-month US dollars LIBOR, also using mid-rates:

Bank Bs Pricing Schedule (2 years) for YY
Fixed interest rate per annum	Floating interest rate per annum
6.6 per cent	USD LIBOR + 20 basis points

Bank B takes a bid-offer spread of 60 basis points. Currently, USD LIBOR is 7% per annum.

(a) What total cost savings (basis points per half year) is available if initially XX borrows at a floating rate from its bank and YY borrows at a fixed rate from its bank, and then they enter into an interest rate swap? XX and YY agreed that a swap of fixed rate P% (per half year) against LIBOR is fair.

(b) Assume that the swap between XX and YY requires floating rate payments at 6-month LIBOR.

Design a swap that allocates 3/7 of the total cost savings to XX and the balance to YY. Draw the swap diagram.

After the swap, what is XXs final fixed rate (per half year) on its loan?

What is the fixed rate (P% per half year) does XX pay YY in the swap?

What is YYs final floating rate (per half year) on its loan?