Part B (8 Marks) Companies A & B both need to raise funds to expand their operations and have been quoted the following rates by their respective banks. Fixed Floating Company A 3.00% LIBOR + 1.50% Company B 5.00% LIBOR + 0.50% Assume that there is no intermediary and none of the companies makes any profit from the swap deal. The LIBOR for 2016 - 20 were as follows: 2016 2017 2018 2019 2020 2.50% 2.00% 1.50% 1.00% 0.50% Required: i. ii. iii. Is there an opportunity for the companies to benefit by means of an interest rate swap? If yes, calculate the opportunity of gain. Calculate the net interest positions of Company A and Company B. Suppose that you have been hired at a bank that acts as a dealer in the swaps market and you know the borrowing rate information of your clients, Company A & Company B. Describe how you could bring these two companies together in an interest rate swap that would make both firms better off, while netting your bank a 2% profit. iv. Now recalculate the net interest positions of Company A and Company B. (1+2+3+2=8 Marks) Part B (8 Marks) Companies A & B both need to raise funds to expand their operations and have been quoted the following rates by their respective banks. Fixed Floating Company A 3.00% LIBOR + 1.50% Company B 5.00% LIBOR + 0.50% Assume that there is no intermediary and none of the companies makes any profit from the swap deal. The LIBOR for 2016 - 20 were as follows: 2016 2017 2018 2019 2020 2.50% 2.00% 1.50% 1.00% 0.50% Required: i. ii. iii. Is there an opportunity for the companies to benefit by means of an interest rate swap? If yes, calculate the opportunity of gain. Calculate the net interest positions of Company A and Company B. Suppose that you have been hired at a bank that acts as a dealer in the swaps market and you know the borrowing rate information of your clients, Company A & Company B. Describe how you could bring these two companies together in an interest rate swap that would make both firms better off, while netting your bank a 2% profit. iv. Now recalculate the net interest positions of Company A and Company B. (1+2+3+2=8 Marks)