Help? 2. Interest Rate Swap ABC Inc. and XYZ Inc. face...
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2. Interest Rate Swap ABC Inc. and XYZ Inc. face the following borrowing costs in the fixed and floating rate markets: Fixed-Rate Market Floating Rate Market ABC T + 0.75% L-0.25% XYZ T+1.50% L+0.10% Each firm desires the rate other than that for which it has comparative advantage. A dealer stands ready to enter into a swap as cither 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 L. 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: At which market does each firm have absolute advantage / comparative advantage? How many basis points represent the potential gains from swapping for all parties? .Obtain the effective cost of funding to XYZ and ABC respectively. What does the swap dealer earn
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