Suppose your company wishes to borrow at a fixed rate, and another one wishes to borrow at a variable rate. Your company can borrow at a fixed rate of 8.5%, or at a floating rate of LIBOR + 50bp. The other company (the potential counter-party) can borrow at a fixed rate of 7%, or at a floating rate of LIBOR +25bp. - Does your company have any comparative advantage compared to the other company? In which rate market does your company have that comparative advantage (if any)? (In the floating rate market or in the fix rate market?) If the two companies decide to enter into a fix-for-floating interests swap and - Your company pays to the other one a 7.2% - The other company pays yours a Libor% Have both counterparties lowered their expenses? What will be the cost of the loan for your company