Company X and Company Y have been offered the following rates Fixed Rate Floating Rate...

Company X and Company Y have been offered the following rates

	Fixed Rate	Floating Rate
Company X	4.5%	LIBOR + 10bps
Company Y	6%	LIBOR + 40 bps

Suppose that Company X wants to borrow floating and company Y wants to borrow fixed. A swap deal will take place between the two company where an investment bank Z will act as a financial intermediary. In this action, Z aims to get a commission of 30 bps. In these circumstances,

Design a swap deal where the apparent benefits are shared equally.
What are X’s and Y’s effective borrowing rates after this swap deal?
Explain the risk carried by the financial intermediary Z in this deal.

Expert Solution

jeff jeffy answered 1 year ago

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