Question: 2) Party A Party B Fixed 3% 9% Floating Libor + 2% Libor + 5% I Above are rates that Party A and Party B

2) Party A Party B Fixed 3% 9% Floating Libor +

2) Party A Party B Fixed 3% 9% Floating Libor + 2% Libor + 5% I Above are rates that Party A and Party B can borrow in the fixed and floating rate markets. Can the two parties benefit from entering in a swap? What are the total gains/comparative advantage to be had from such a swap? If A wants to borrow floating and B wants to borrow fixed, construct a swap between the two parties whereby they can exploit the gains of the swap equally. Show your work in a swap diagram

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