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Suppose company A and B operate in the same market. To raise additional capital, company A can borrow at 6% interest or at LIBOR+3%, while
Suppose company A and B operate in the same market. To raise additional capital, company A can borrow at 6% interest or at LIBOR+3%, while company B can access outside financing at 8% interest or LIBOR+6%. If you are a bank that offers interest rate swaps, how would you devise a contract that is equally beneficial for both of these companies if you seeks to earn 0.2% in commission?
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