Review 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. Review 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 company B? Review question 3 What arbitrage strategy can be used if the following rates are observed in the market and what will be the risk free profit amount? USD1 = AUD 1.3000 USD1 = SGD 1.3000 AUD1 = SGD 1.1800 Review question 4 Given the following rates, what arbitrage profit may be made with respect to the Australian dollar? USD 1 = AUD 1.70 USD 1 = SGD 1.70 AUD 1 = SGD 0.96

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