You can borrow Australian dollars (A$) at a fixed rate of 5% or at a variable rate equal to A$ LIBOR + 2%.

In the variable-for-fixed A$ swap market you can receive A$ LIBOR by paying 2.5% A$ fixed or you can pay A$ LIBOR and receive 2.25% A$ fixed. If you want to borrow at a fixed rate, what is the best way: direct, or synthetic, i.e., combining a floating rate loan with a swap? Demonstrate and explain concisely how the latter would work and which represents the lower fixed rate.