What are the gains from trade of entering into a swap for these two firms?  
What are the gains from trade of entering into a swap for these two firms?
Firm A Firm B
Fixed Rate 9% 5%
Floating Rate LIBOR + 7% LIBOR + 4%
Ans. Gains from trade are 1%. (I dont know how to get this answer)
Possible further question: How to arrange a swap contract so that Firm A earns 0.6% from it?
Homework Answers
Gain to firm A 60% is only possible when firm a and firm b share in ratio of 60:40.
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What are the gains from trade of entering into a swap for these
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