Barrow and Greening-Article on Swaps ACCA website

It is a 'missing' figure to make the gains to both parties what is required. Both parties will end up making a gain of 0.8% (before the bank fees). If Greening did their own fixed interest borrowing they would pay 4.5%. So they must end up paying 4.5 - 0.8 = 3.7% (before bank fees). Because they are swapping, they will actually borrow floating at E + 0.8%. They will receive E from Barrow, which means they are then paying 0.8%. So to end up paying 3.7% they need to pay 3.7 = 0.8 = 2.9% to Barrow. Alternatively, you could look at Barrow instead. If Barrow did their own floating rate borrowing, they would pay E + 1.5%. So they must end up paying E + 1.5 - 0.8 = E + 0.7% (before bank fees). Because they are swapping, they will actually borrow fixed at 3.6%. They will pay E to Greening, which means they are then paying E + 3.6%. To end up paying E + 0.7% they will need to receive 3.6 - 0.7 = 2.9% from Greening.