Swaps Questions: (7 pts) 4. The bank has entered into two offsetting swap contracts with two separate clients. Both clients have noticed that the spread that the bank charged them is not the "correct swap rate (i.e., that which would give the swap zero value). Both clients are upset with the bank and would like an explanation. a. Provide an explanation as to why the customers should expect the bank to charge a spread to each client, even if the market is fully competitive. (3 pts) b. Explain the type of analysis the customers could do to convince themselves that the bank is charging a fair spread. What evidence could they use from market based instruments? (4 pts) Swaps Questions: (7 pts) 4. The bank has entered into two offsetting swap contracts with two separate clients. Both clients have noticed that the spread that the bank charged them is not the "correct swap rate (i.e., that which would give the swap zero value). Both clients are upset with the bank and would like an explanation. a. Provide an explanation as to why the customers should expect the bank to charge a spread to each client, even if the market is fully competitive. (3 pts) b. Explain the type of analysis the customers could do to convince themselves that the bank is charging a fair spread. What evidence could they use from market based instruments? (4 pts)