Reference no: EM133004496

Consider two companies, X and Z, which face the following borrowing rates , annualised and adjusted for the differential impact of taxes:

                                              Company X                  Company Z
US dollars (floating rate)               LIBOR + 0.5%             LIBOR + 1.0%
Canadian dollars (fixed rate)                5.0%                       6.5%

Problem 1: Assume that company X wants to borrow US dollars at a floating rate of interest and  company Z wants to borrow Canadian dollars at a fixed rate of interest. Design a swap that will net a bank, acting as intermediary, 50 basis points and that will appear equally  attractive to both parties (i.e., company X and company Z).