Suppose that a swap dealer offers the following two swap quotes:
FMA pays dealer $ 6.50% for £ Libor%.
FMA pays dealer £ Libor% for $ 6.40%.
Answer A ) the current borrowing cost for FMA is simply Libor+ 1%
Answer B) Since FMA has taken loan with floating rate interest and is concerned about rising interest rates , he would be most benefited by entering into a swap transaction which leads him to pay a fixed rate of interest.
Hence swap quote A which is FMA pays dealer $ 6.50% for £ Libor% will be most beneficial the cashflows will be
C) with swap borrowing cost is $6.5% + 1%
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