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Two companies, A and B, have the following borrowing rates: Fixed Borrowing: 4.2% for A; 5.6% for B Floating Borrowing: LIBOR+80 bps for A; LIBOR+120

Two companies, A and B, have the following borrowing rates:

Fixed Borrowing: 4.2% for A; 5.6% for B

Floating Borrowing: LIBOR+80 bps for A; LIBOR+120 bps for B

The two companies want to borrow in the markets that they do not have a comparative advantage. According to the comparative advantage argument, what is the total potential savings for A and B if they enter into an interest rate swap and use a financial institution which charges 10 basis points?

A.

80 basis points

B.

90 basis points

C.

120 basis points

D.

110 basis points

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