SWAPS): Koby & Maru Corporations both seek at the lowest possible cost. They face the following rate structure:
Koby Maru
Credit Rating AA BB
Cost of fixed funds 10.0% 13.0%
Cost of floating funds Libor + 0.5% Libor+1.0%
In what type of funding Koby (Maru) have a comparative advantage?
If a swap is arranged, what is the maximum savings available to both?
Outline a swap such that savings are divided equally between the two.