Question 1

AFirm and BFirm each need $3 million in funds and are quoted the following rates in the fixed and floating markets. If AFirm accepts the fixedrate funds and BFirm the floatingrate funds, structure a swap where they both benefit equally. Show your calculations.

A - fixed: 5.3 per cent; floating: BBSW + 1 per cent;

B - fixed: 6.3 per cent; floating: BBSW + 1.4 per cent.

A. How much can each company reduce their borrowing rates by if they wish to share the benefits equally?

B. Structure a swap so that AFirm will have twothird of the total benefit and B Firm will have onethird of the benefit.

Question 2

Company A and Company B each need $10 million in funds and are quoted the following rates in the fixed and floating markets. If A accepts the fixedrate funds and B the floatingrate funds, structure a swap where they both benefit equally. Show your calculations.

A - fixed: 3.3 per cent; floating: BBSW + 1.6 per cent;

B - fixed: 5.1 per cent; floating: BBSW + 2 per cent.

A. Structure a swap so that the two companies share the benefit equally.

B. How would the swap rates change if company A negotiates to get 0.2% more than the equal share you calculated in part A?