Two counterparties named A and B with the following characteristics would like to enter in an Interest Rate Swap proposed by a Swap Bank (SB).

• -Counterparty A can issue a 2-year $ bond at 2% (it wants a variable rate)
• -Counterparty B can borrow through a 2-year loan from its bank (it wants a fixed rate)
• -Today, B's banker has the following rates Libid andLibor +0.05%
• -SB offers a 2-year swap transaction quotation at 1.94%/1.95%
• Q1.Explain in details the IRS and its requirements we have (the flows, the rates the economic agents have to pay or will receive and so on). No need to draw it (no pictures required).
• Q2.Are all the agents happy in entering in this swap? Why?Q3.What are the criteria for an IRS?