$\begin{array}{lcc}
&\text { Canadian interest rate }&\text {french interest rate }\
& \text { on CS loans } & \text { on euro loans } \
\text { Canadian firm } & 5 \% & 5.5 \% \mathrm{a} \
\text { Freneh firm } & 6 \% & 5.5 \%
\end{array}$
The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars.
-What will be the annual GROSS interest payment of firm A to the swap bank? (where "GROSS" means that it does not take into account the payment made by the swap bank to firm A on the loan that firm A made to the swap bank)
A) £66,000
B) £76,000
C) $72,000
D) $216,000

Question

$\begin{array}{lcc} 
&\text { Canadian interest rate }&\text {french interest rate }\
& \text { on CS loans } & \text { on euro loans } \
\text { Canadian firm } & 5 \% & 5.5 \% \mathrm{a} \
\text { Freneh firm } & 6 \% & 5.5 \%
\end{array}$
The Canadian firm wants to borrow in euros and the French firm wants to borrow in Canadian dollars.
-What will be the annual GROSS interest payment of firm A to the swap bank? (where "GROSS" means that it does not take into account the payment made by the swap bank to firm A on the loan that firm A made to the swap bank)
A) £66,000
B) £76,000
C) $72,000
D) $216,000

Quizplus · Accepted Answer

The Canadian firm will borrow 10 million euros at 5.5% and lend 10 million Canadian dollars at 5%. The annual interest payment will be 550,000 euros - 500,000 Canadian dollars = 50,000 euros. The swap bank will lend 10 million Canadian dollars at 6% and borrow 10 million euros at 5.5%. The annual interest payment will be 600,000 Canadian dollars - 550,000 euros = 50,000 euros. The gross interest payment of firm A to the swap bank will be 50,000 euros + 50,000 euros = 100,000 euros.

The Canadian Firm Wants to Borrow in Euros and the }