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Use your solution to the following problem to answer the question. Counterparties AA and BB...

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Accounting

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Use your solution to the following problem to answer the question. Counterparties AA and BB face the following borrowing costs in the marketplace: AA BB Fixed 5.60% 6.60% Floating 3.80% 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 gains for AA and BB are respectively 25 and 20 basis points 55 and 20 basis points 45 and 30 basis points 35 and 10 basis points

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