YouTube T3-31: Comparative advantage in an interest rate swap

[Nicole Seaman]

AAACorp has a comparative advantage in fixed-rate markets, but BBBCorp has a comparative advantage in floating-rate markets (even as it pays more everwhere!). The difference in spreads (in this case, the difference is 0.50% = 1.20% - 0.70%) is the gross total advantage that can be conferred.

David's XLS is here: https://www.dropbox.com/s/ohkh7u4jpzj7a5v/091918-swap-compare-adv.xlsx

 

[Sixcarbs]

Great explanation, can't be any clearer!

Colors really help too.

 

[David Harper CFA FRM]

@Sixcarbs thank you. Finally, somebody acknowledges the role of colors in my work.
Colors are my life If somebody took away my colors, I could not do this work!

 

[Sixcarbs]

@Sixcarbs thank you. Finally, somebody acknowledges the role of colors in my work.
Colors are my life If somebody took away my colors, I could not do this work!

I will be bringing crayons into the exam and telling them you recommended them and said it was ok.