Suppose that company A and company B want to borrow $40 million for 4 years, the interest rate offered by the market is as follows:

Fixed rate Float rate

A 11.00% 6LIBOR+80bp

B 9.50% 6LIBOR+20bp

(1) How to understand the nominal principal and the actual principal of interest rate swap

(2) How should company A and company B determine their respective comparative advantage market?

(3)If B wants to get a floating rate loan and A wants to get a fixed rate loan, how many ways can they achieve this?

(4) In the swap contract, if company B pays LIBOR to company a and accepts the fixed interest rate X from company A as X, Write the process of direct exchange between company A and company B.

(5) Determine the range of X.

(6) Select an appropriate interest rate X and design a reasonable swap.