Interest Rate Swap An interest rate swap is an exchange of one set of interest flows for another, with (usually) no exchange of principle. This is a "derivative" contract between consenting parties Example: Relative Advantage in Borrowing has access to both floating rate and fixed rate borrowing. rate borrowing at 8.0%. Company AAA would prefer floating rate borrowing. rate borrowing at 9.5%. Company BBB would prefer fixed rate borrowing. Suppose we have two companies, AAA and BBB, each of which wishes to borrow for 5 years. Each Company AAA has access to floating rate borrowing at LIBOR + 0.1% and also has access to fixed Company BBB has access to floating rate borrowing at LIBOR + 0.8% and also has access to fixed Company AAA could borrow paying a floating rate of LIBOR + 0.1% and BBB could borrow paying a fixed rate of 9.5%. Each gets what they want. But there is a better way, cheaper for both firms, because BBB has a relative or comparative advantage borrowing in the floating rate market and AAA has a relative advantage borrowing in the fixed rate market. Explain. Suppose the notional principal for this swap is $1,000,000. If LIBOR is 3 percent, a net payment of _dollars will be m ade by toExplain If LIBOR increases by 100 basis points, this net payment will (circle one) rise/fall to dollars