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Question 7 18 out of 20 points Use the interest rates below to identify where each firm has a comparative advantage and then design a
Question 7 18 out of 20 points Use the interest rates below to identify where each firm has a comparative advantage and then design a swap based upon the comparative advantage that allows the financial institution to capture a 1% fee and benefits both Firm A and Firm B equally. You do not need to draw the swap diagram. Firm Fixed Floating LIBOR+2.8% Firm A 4% Firm B 3.5% LIBOR+1.6% Provide your answers by typing in an answer with the appropriate letter for each item requested in the list below a) Which firm has the comparative advantage in Fixed b) Which firm has the comparative advantage in Floating c) In the Swap what rate is received by Firm A, In the swap what rate is paid by Firm A d) In the Swap what rate is received by Firm B, In the swap what rate is paid by Firm B Response Feedback: A-Fixed B - Floating A Pays Libor Receives 1.5 B Pays 1.6 Receives LIBOR
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