Bosie Ltd Is About to Establish a New Funding Arrangement

Multiple Choice

Bosie Ltd is about to establish a new funding arrangement.It is able to borrow in either the fixed-rate or floating-rate debt markets.The company wishes to lower its cost of borrowing by entering into a swap transaction with Matlock Ltd.Based on the following data for the two companies,in which interest rate market will Matlock Ltd borrow,and swap into?
$$\begin{array} { | l | l | } \hline \text { Bosie Ltd } & \text { fixed rate } 10.8 \% \text { per annum; floating rate BBSW } + 0.3 \% \text { per annum } \\\hline \text { Matlock Ltd } & \text { fixed rate } 11.5 \% \text { per annum; floating rate BBSW } + 0.7 \% \text { per annum } \\\hline\end{array}$$

A) Borrow at fixed interest rate; swap into floating rate
B) Borrow at floating interest rate; swap into fixed rate
C) Borrow at fixed interest rate; no advantage in swap transaction
D) Borrow at floating interest rate; no advantage in swap transaction