Suppose that firm A can borrow at BBR+60bps in the money market or at 7.5% in the two-year fixed-rate market, whereas bank B can borrow at BBR in the money market and at 6.5% in the two-year fixed-rate market.Explain the comparative advantages of these two borrowers and demonstrate how they could exploit these advantages to provide each with a lower interest rate, assuming that the firm wants fixed-rate funds and the bank wants floating-rate funds.

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The Answer of Suppose that firm A can borrow at BBR+60bps in the money market or at 7.5% in the two-year fixed-rate market, whereas bank B can borrow at BBR in the money market and at 6.5% in the two-year fixed-rate market.Explain the comparative advantages of these two borrowers and demonstrate how they could exploit these advantages to provide each with a lower interest rate, assuming that the firm wants fixed-rate funds and the bank wants floating-rate funds.

Suppose That Firm a Can Borrow at BBR+60bps in the Money