Please Show Your Work

1. Swaps

Assume Caterpillar Corporation is interested in borrowing at a fixed rate of interest and Harrods of London is interested in borrowing at a floating rate of interest. Here are the borrowing rates currently available to each company:

Caterpillar Harrods

Fixed: 6.00% Fixed: 6.125%

Floating: LIBOR + 1% Floating: LIBOR + 1.5%

Can Barclays Bank intermediate a mutually-beneficial swap between the parties and make a profit for itself? If so, what would be the terms?

1. Yes. Caterpillar borrows fixed at 6.00% and Harrods borrows floating at LIBOR + 1.25%
2. Yes. Caterpillar borrows floating at LIBOR + 1% and pays 6.125% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.25%.
3. Yes. Caterpillar borrows floating at LIBOR + 1% and pays 5.875% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.375%.
4. Yes. Caterpillar borrows floating at LIBOR + 1% and pays 5.75% to Barclays. Harrods borrows fixed at 6.125% and pays Barclays LIBOR + 1.25%.
5. No; there is no mutually beneficial swap available.