1. Suppose that ABC Corp and XYZ Inc are looking to borrow $350,000 and can issue 2-year debt at the following market rates:

Firm	Market	Rate
ABC	Fixed	4.8%
ABC	Floating	LIBOR + 3.1%
XYZ	Fixed	6.3%
XYZ	Floating	LIBOR + 5.2%

Suppose that Citigroup is offering a 1.3%/1.6% bid-ask spread on two-year swaps. That is, they are offering to be the fixed payer in a 2-year swap at a rate of 1.3% APR and a floating payer in a swap with a rate of 1.6% APR. Suppose also that ABC Corp wishes to borrow at a fixed rate while XYZ Inc wishes to borrow at a floating rate. Show that:

1. ABC Corp is better off using a swap with Citigroup than directly borrowing from the market
2. XYZ Inc is better off using a swap with Citigroup than directly borrowing from the market
3. Citigroup can take both of these swaps and end up with positive profits on the deals.