Suppose that the fixed and floating rates available for ABX and Cisco are as shown in the following table.

	ABX	CISCO
Fixed Rate	4.0%	3.0%
Floating Rate	LIBOR + 300bp	LIBOR + 100bp

(1) ABX initially wanted to borrow at floating rate for 5 years.

(2) Cisco initially wanted to borrow at fixed rate for 5 years.

(3) They want to utilize comparative advantage in respective debt markets and make a swap contract to save borrowing costs.

(4) The available 5 year swap rate is 1.6%.

Determine:

a. In which rate of debt market they have comparative advantages.

b. Original interest rates for each.

c. transformed interest rates for each.

d. Amounts of cost saving for each.

e. Total cost saving.

f. If the swap rate was 2.2%, then would the swap transaction work for cost saving?