Swaps and The Law of Comparative Advantage - How to do the comparative advantage swap calculation.

[@rocksolidsingapore]

Thanks . very clear now

[@PBoyle]

Thanks. I'm glad you find it helpful.

[@juwright1949]

Excellent! 👍🏻

[@nc97378]

Hi Patrick, can I do it in a different way? For example; company X paying the whole LIBOR + 0.4%, but then receiving the 4.3% fixed, therefore again effectively paying LIBOR - 0.4%, and company Y also paying 0.2% less than it normally would? Is there any difference in this approach relative to the one you described?

[@alkhodersolh5411]

Hello sir, can you tell me plz what are the steps that we have to follow after after finding 0.4? 2- How did u find the 3.9? 3- if company x is seeking floating rate why coming to company x is representing the fixed rate?

[@darrenpilgrim6639]

Hi Patrick - Can your swap be solved by X paying Y L +40bps and receiving 4.3% fixed in return?

[@mokshitjain6985]

Hello sir, can you please give the intuition for doing 1%-0.6%=0.4% and also why are they sharing it??

[@jonathanspielberg6381]

1% is the difference in both fixed rates: 4.5% - 3.5% = 1% 0.6% is the difference in both floating rates: Libor -0.2 - Libor +0.4 = 0.6 In order to get the potential benefit for both parties, we subtract the latter difference from the first, resulting in 0.4%. As the deal states that the potential benefit is shared equally between both participating parties (in some exercises the bank also requires a fee which would then have to be subtracted), we now have to divide the potential gain of 0.4% by two = 0.2%

[@PBoyle]

Thanks Jonathan, perfect answer.