Company X and Y face the following interest rates ( adjusted for differential impact):
Fixed Rate Floating rate
Canadian $ U.S $
Company X: LIBOR LIBOR +0.2%
Company Y: LIBOR +0.5% LIBOR +2.0%
Assume that X wants to borrow U.S dollars at a floating rate of interest and Y wants to borrow Canadian dollars at a floating rate of interest. Design a swap that will net a bank, acting as an intermediary, 0.5% per annum and will appear equally attractive to X and Y. Have the bank assume all the currency risk.