Question: Fixed Floating Party A 3% Libor + 1% Party B 896 496 Libor + 4% Above are rates that Party A and Party B can

Fixed Floating Party A 3% Libor + 1% Party B 896

Fixed Floating Party A 3% Libor + 1% Party B 896 496 Libor + 4% 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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