Question: below are rates that Party A and Party B can borrow in the fixed and floating rate markets. Can the two parties benefit from

below are rates that Party A and Party B can borrow in

below 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. 3) The spot gold is trading @ $1830 /oz.. The1 year t-bill rate in the US is .39%. a) Calculate the 1 year forward rate for Gold using Spot Futures Parity. b) If the observed 1 year forward rate is $1850/oz, is there an arbitrage opportunity? How would you take advantage of this? Fixed Floating Party A 3% Libor + 2% Party B 9% Libor + 5%

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