Question: Use your solution to the following problem to answer question. Counterparties AA and BB face the following borrowing costs in the marketplace: Fixed Floating AA

 Use your solution to the following problem to answer question. Counterparties

Use your solution to the following problem to answer question. Counterparties AA and BB face the following borrowing costs in the marketplace: Fixed Floating AA 5.60% 3.80% BB 6.60% 4.05% AA desires a floating rate loan while BB desires a fixed rate loan. A dealer stands ready to pay 5.90% fixed rate against receiving a floating rate of 3.85% or receive a fixed rate of 6.30% against paying a floating rate of 4%. Assume that each party exploits its relative advantage and swaps with the other as proposed by the dealer: Then: The net cost of desired financing for AA and BB are respectively 0 4.75% and 7.50% 3.55% and 6.40% 0 4.40% and 7.50% 4.40% and 7.60%

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