Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia is the more credit-worthy company. It could borrow at LIBOR+1% or it could borrow fixed at 8%. Paraguas could borrow fixed at 12% or it could borrow floating at LIBOR+2%.

Lluvia would prefer the flexibility of floating rate borrowing, while Paraguas wants the security of fixed rate borrowing. What should they do?

		A) Lluvia could borrow fixed at 8% and swap for floating rate debt.
		B) Paraguas could borrow floating at LIBOR+2% and swap for fixed rate debt.
		C) Both are right actions.
		D) None is right.

Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia is the more credit-worthy company. It could borrow at LIBOR+1% or it could borrow fixed at 8%. Paraguas could borrow fixed at 12% or it could borrow floating at LIBOR+2%.

What opportunity set for improvement in rate for Lluvia and Paraguas?

		A) 3% savings for both which can be distributed between the two parties.
		B) 4% savings for both which can be distributed between the two parties.
		C) 5% savings for both which can be distributed between the two parties.
		D) None of the above.