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Determine whether a profitable swap could be arranged

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The following table shows the borrowing capability of Firm X and Firm Y.

BORROWER                FIXED RATE (per annum)                     VARIABLE RATE (per annum)

X                                        7.30%                                           BBSW + 0.55%

Y                                         9.90%                                          BBSW + 1.95%

Problem 1: Determine whether a profitable swap could be arranged. In your answer, calculate comparative advantages and show the net borrowing differential that may be gained and shared between Firm X and Firm Y.

Reference no: EM133007304

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