The following table shows the borrowing capability of Firm X and Firm Y.

BorrowerFixed Rate of Interest Per AnnumVariable Rate of Interest per Annum

X7.30%BBSW + 0.55%

Y9.90%BBSW + 1.95%

i)State whether a profitable swap may be arranged. In your answer, calculate comparative advantages and show the net borrowing differential that may be gained and shared between Firm X and Firm Y.

ii)If the two firms wish to proceed with the interest rate swap, explain how the existence of the comparative net differential may be beneficial to both firms if they share the net borrowing differential equally.