Two companies have approached a bank each seeking to enter into a $1 million intermediated interest rate swap. The following information in relation to the borrowing capacity of each company is provided.

Debt markets	Firm A	Firm B
Fixed-rate funds	10.5%	8.5%
Variable-rate funds	BBSW + 2.4%	BBSW + 1.3%

A. construct a swap that will benefit all parties based on the following conditions.

The bank will obtain a spread of 0.10%.

The beneficial gains will be shared equally between company A and company B.

B. Include a payoff table to show the cash flows of the intermediated swap for the bank and the two companies. Show all workings.

Answer rating: 100% (QA)

A To construct a swap that will benefit all parties based on the given conditions we need to create ... View the full answer