Interest rate swap is a risk management tools used by the conventional banks in Malaysia, such as HSBC Malaysia and United Overseas Bank (UOB)(Malaysia) Bhd. a. Explain the various types of SWAPs in practice in the two above banks. The most common type of interest rate swap is one in which one party agrees to make payments on fix rate to another party to pay floating. The floating rate is tied to a KLIBOR. Based on the above information. Solve the below question.

Assume that Mr. Krishna owns an RM1,000,000 investment that pays him KLIBOR + 1.5% every month. As KLIBOR goes up and down, the payment Mr. Krishna receives changes. Now assume that Mrs. Moorthy owns an RM1,000,000 investment that pays her 1.5% every month. The payment she receives never changes.

Mr. Krishna decides that he would rather lock in a constant payment and Mrs. Moorthy decides that she'd rather take a chance on receiving higher payments. So Mr. Krishna and Mrs. Moorthy agree to enter into an interest rate swap contract.

Under the terms of their contract, Mr. Krishna agrees to pay Mrs. Moorthy KLIBOR + 1% per month on an RM1,000,000 notional principal. Mrs. Moorthy agrees to pay Mr. Krishna 1.5% per month on the RM 1,000,000 notional amount. b. Explain using a diagram to illustrate the TWO (2) different scenarios to Mr. Krishna and Mrs. Moorthy in this agreement.