Part 1.

The following are lending rates for companies A and B

Company	Variable rate	Fixed rate
A	LIBOR + 1%	6%
B	LIBOR + 3%	9%

Part a. In which market does each borrower have a comparative advantage? Why?

Part b. Under what conditions would a swap be possible in this case?

Part c. What would be the cost of debt for each company after the swap?

Part 2.

Suppose that:

The spot price of non-dividend-paying stock is $50

The 3-month forward price is US$50

The 1-year US$ interest rate is 10% per annum (continuously compounded)

Calculate the potential profit from any arbitrage opportunity that may exist.

Part 3.

You sell one March futures contracts when the futures price is $1,025 per unit. Each contract is on 100 units and the initial margin per contract that you provide is $3,200. The maintenance margin per contract is $2,550. During the next day the futures price drops to $1,012 per unit. What is the balance of your margin account at the end of the day?