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Alles Ales (AA) and Barnicle Boats (BB) each need $5 million in funds and go to the market for quotes. They are quoted: for AA - fixed: 7.4 per cent; floating: BBSW plus 2 per cent; for B - fixed: 8.8 per cent; floating: BBSW plus 2.2 per cent. If AA accepts the fixed-rate funds and BB the floating-rate funds, then they both decide they can reduce their cost of funds through a swap, structure a swap where they both benefit equally.
AA
BB
Pays to market
- 7.4%
-(BBSW + 2.2%)
Pays to other
- BBSW
- 6.0%
Receives from other
+ 6.0%
+ BBSW
Net result
BBSW + 1.4%
8.2%
Please explain to me how come the answer is (-6.0%) on pay to other of company BB
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