Investment Banks, Hard Bank (HB) and Soft bank (SB) have been offered the following investment rates per annum:

Bank	Fixed Rate	Floating Rate
HB	9.1%	Libor + 0.30%
SB	10.7%	Libor + 0.50%

Hard Bank requires fixed rate investment and Soft bank requires floating rate investment.

1. How much total benefit (% p.a.) can be extracted from a swap based on the interest rates listed in the table? (4 marks)

2. If a Middle Bank (MB), acting as intermediary receives 0.2% per annum, calculate the distribution of the remaining benefit if:

1. HB takes 40% share and (2 marks)
2. SB takes 60% share (2 marks)

What effective investment rate will?

3. HB receive (2 marks)
4. SB receive (2 marks)

3. Draw a diagram showing the flow of funds. As part of the arrangement, where HB pays LIBOR to MB and the MB pays LIBOR to SB.

(correct and complete diagram with all labels correctly placed will receive 8 marks)