Question: Bank A can issue one-year, floating-rate CDs at Libor plus 1 percent or fixed-rate CDs at 12,5 percent. Bank B can issue one-year floating-rate CDs

Bank A can issue one-year, floating-rate CDs at Libor plus 1 percent or fixed-rate CDs at 12,5 percent. Bank B can issue one-year floating-rate CDs at Libor plus 0,5 percent or fixed-rate at 11,0 percent.

  1. Set up a swap and assume the potential gain is split equally between A and B.

  1. If all barriers to entry and pricing inefficiencies between Banks A debt markets and Banks B debt markets were eliminated, how would that affect the swap transaction?

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