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Derivatives (swaps) Two parties wish to enter into a swap to take advantage of the other party's comparative advantage and approach you, an investment bank.

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Derivatives (swaps)

Two parties wish to enter into a swap to take advantage of the other party's comparative advantage and approach you, an investment bank. Party A wishes to borrow at a fixed rate, but if it went into the market, it could borrow fixed at 11.35%. However, if it borrowed floating, it could borrow at BBSW + 2.25% Party B wishes to borrow floating, and if it did so, it could borrow at BBSW +0.95%. However, if it borrowed fixed, it could borrow at 7.65% The investment bank charges 0.125% on each leg of the swap Describe the transaction which will maximise the benefit for all parties

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