For P1 FRM only. In my tweetstream, @jdportes writes, "Astonishing. WSJ prints article whose first sentence defines comparative advantage - and gets it completely wrong." The article is here, and this is the mistaken first paragraph from yesterday's Wall Street Journal: In regard to Hull's (Chapter 7) swaps, our AIM is "Describe the comparative advantage argument for the existence of interest rate swaps ..." If we were to mistakenly assume the above definition with respect to interest rate swaps, a comparative advantage would mistakenly refer to a bank (FI) which can borrow at a lower rate, or earn a higher investment return, than another bank. But a comparative advantage in borrowing/lending markets is more subtle than this. Questions: What is a comparative advantage in borrowing/lending capital markets which enables the utility of an interest rate swap (something brief and memorable would be great)? If we assume a market maker as the swap intermediary who charges (X) bps to intermediate a vanilla fixed-for-floating interest rate swap, what is the simple mathematical condition that justifies an IRS; i.e., that implies both counterparties can improve their position via an IRS?