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Question 23 Consider the following information for an interest rate swap contract between companies A and B. Company A can borrow from a bank at
Question 23
Consider the following information for an interest rate swap contract between companies A and B.
Company A can borrow from a bank at 8% fixed or LIBOR + 1% floating (preference is borrowing at fixed rate) Company B can borrow from a bank at 9.6% fixed or LIBOR + 1.5% (reference is borrowing at floating rate ) Company A prefers floating, and Company B prefers fixed. From this information, in which interest rate market Company B has comparative advantage and why?
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