. . . . 1) Each scenario below lists a firm's options for borrowing directly in two different markets. The swap rate between these markets will also be given. The firm will want to borrow in a specific market. For each, demonstrate whether the firm should borrow directly from that market, or indirectly using a swap. For the choice selected, list the firm's effective interest rate as a result of their strategy. . 1 . . . . . . Rate . 2 a) Goal: Borrow at a fixed rate Market Fixed Floating Swap 6% . . LIBOR + 4% LIBOR for 3% . . . . 3 . Rate . b) Goal: Borrow at a floating rate Market Fixed Floating Swap 6% . . LIBOR + 4% LIBOR for 3% . . . . . 2) Suppose that ABC Corp and XYZ Inc are looking to borrow $350,000 and can issue 2-year debt at the following market rates: Firm Market Rate ABC Fixed 4.8% ABC Floating LIBOR + 3.1% XYZ Fixed 6.3% XYZ LIBOR + 5.2% . . . . Floating . . . . . . . Suppose that Citigroup is offering a 1.3%/1.6% bid-ask spread on two-year swaps. That is, they are offering to be the fixed payer in a 2-year swap at a rate of 1.3% APR and a floating payer in a swap with a rate of 1.6% APR. Suppose also that ABC Corp wishes to borrow at a fixed rate while XYZ Inc wishes to borrow at a floating rate. Show that: . . . . . . a) ABC Corp is better off using a swap with Citigroup than directly borrowing from the market b) XYZ Inc is better off using a swap with Citigroup than directly borrowing from the market c) Citigroup can take both of these swaps and end up with positive profits on the deals