Mowal Plc. is offered a bank loan at a fixed rate of 6 percent or a floating rate of LIBOR + 0.5 percent. Sika Ltd. can borrow at a floating rate of LIBOR + 0.25 percent or a fixed rate of 5.25 percent.

• Determine the individual benefits of both companies entering into an interest rate swap contract.

• Assuming that a financial intermediary makes this arrangement and charges a fee of 0.25 percent, explain the benefit for the two companies.