Q3:SWAP City Bank has 500 millions dollars worth of deposit at fix rate 6%. GS Bank has 500 mil loans at floating rate City GS BORROW IN RATE 61 L+0.5% 6.8%. L+0.7 City Bank decide to borrow floating while GS seek to borrow fix. 1. Explain why would City Bank might need a floating rate. 2. Which bank has an absolute advantage and which has a relative advantage?,, 3. If both bank enter a swap, what would be the cost of borrowing for each bank? 4. Create a swap between the two banks 5. Draw a proper scheme 6. Explain the process of this swap

City Bank has 500 millions dollars worth of deposit at fix rate 6%. GS Bank has 500 mil loans at floating rate City Bank decide to borrow floating while GS seek to borrow fix. 1. Explain why would City Bank might need a floating rate. 2. Which bank has an absolute advantage and which has a relative advantage?, 3. If both bank enter a swap, what would be the cost of borrowing for each bank? 4 . Create a swap between the two banks 5. Draw a proper scheme 6. Explain the process of this swap