Business, 06.05.2021 23:30 genyjoannerubiera

The following table shows the market rates for Company A and B in the fixed rate market and the floating rate market. Company A Company B
Fixed 8.30% 9.20%
Floating LIBOR+20bp LIBOR+50bp

Suppose a financial intermediary makes the following proposal. Company A will borrow in the fixed rate market, and Company B will issue debt in the floating rate market. Then, Company A will pay LIBOR 20bp to the intermediary, which in turn will pay LIBOR 10bp to Company B. Company B will pay 8.7% fixed rate to the intermediary, and the intermediary will pay 8.6% to Company A. Which of the following statements is the least accurate?

a. Company B has a comparative advantage in floating rate borrowing.
b. Company A gains 0.3% from the swap.
c. The intermediary gains 0.2% from the swap.
d. Company A has an absolute advantage in fixed rate borrowing.
e. Company B gains 0.2% from the swap.

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