can anyone help with this one question? Able Inc. and Baker Inc. face...
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can anyone help with this one question?
Able Inc. and Baker Inc. face the following borrowing costs in the fixed and floating rate markets:
Fixed?Rate Market Floating Rate Market
Baker T + 1. 95% L + 0.30%
Able T + 0.65% L ? 0.15%
1.3% .15%
Each firm desires the rate other than that for which it has comparative advantage.
A dealer stands ready to enter into a swap as either a fixed?rate payer or floating-rate receiver (or vice versa). The dealer will pay a fixed T+1.22% against LIBOR or receive T+1.30% against LIBOR. Assume that each firm borrows in the market in which it has comparative advantage and enters into a swap agreement. Analyze the potential gains from swapping for all parties under the following headlines:
b. What does the swap dealer earn?
0.08%
0.13%
-0.07%
0.23%
0.07%
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