Suppose that Company AK and Company OT want to borrow Australian dollars. The table below contains their borrowing rates (p.a.):

	Company AK	Company OT
Fixed-rate borrowing cost	6.25%	7.5%
Floating-rate borrowing cost	BBSW	BBSW + 0.75%

If Company AK wants to borrow at a floating-rate and Company OT wants to borrow at a fixed-rate. Now they enter into a swap to save their borrowing costs. Suppose that Deutsche Bank acts as a financial intermediary to arrange the swap and makes a profit of 0.1% p.a. Both companies have an equal cost saving in their borrowing costs.

a) Determine whether the following statements are TRUE or FALSE and briefly explain your answers. (3 marks)

i. Company AK has comparative advantage in the fixed rate market.

ii. Cost saving for each company after the swap transaction is 0.2% p.a.

iii. The notional principal will be exchanged at the beginning and the end of the swaps life.