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Construct a swap between the two parties

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Reference no: EM132403215

Party A Fixed 3% Floating Libor + 1%

Party B Fixed 8% Floating Libor+ 4%

Above are rates that Party A and Party B can borrow in the fixed and floating rate markets. Can the two parties benefit from entering in a swap? What are the total gains/comparative advantage to be had from such a swap? If A wants to borrow floating and B wants to borrow fixed, construct a swap between the two parties whereby they can exploit the gains of the swap equally. Show your work in a swap diagram.

Reference no: EM132403215

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