Interest Rate Swaps

CMC Co. takes out a four-year CHF 60,000,000 loan taken out to part-fund the setting up of four branches.

Interest will be payable on the loan at a fixed annual rate of 2.2% or a floating annual rate based on the yield curve rate plus O.40%. The loan’s principal amount will be repayable in full at the end of the fourth year.

An interest rate swap contract with a counterparty, where the counterparty can
borrow at an annual floating rate based on the yield curve rate plus O.8% or an
annual fixed rate of 3.8%. Pecunia Bank would charge a fee of 20 basis points each to act as the intermediary of the swap. Both parties will benefit equally from the swap contract.

Sir, I’ve watched your video on Interest-Rate Swaps and I wanted to know from the above question, how to find out the arbitrage profit. Also, how do I know what rate of borrowing (Fixed or Variable) CMC would want and what their counterparty would want want as they’ve not stated that in the question. If I could just understand the logic behind that, I probably should arrive at the answer easily by using your table and steps.