Let us start by considering the case where A prefers a floating rate and B a fixed rate, and let us ignore for now the presence of the bank. A thus borrows first at a fixed rate and B at the floating rate, and they then enter into a swap. Let us denote by x the interest that B pays to A in exchange for the fixed rate. The final rates for each firms are For A: 8.5 + Euribor -x For B: Euribor +1+x-Euribor = 1+x For the swap to be profitable, we must have