Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
$$\begin{array} { l l l }
& \$ & € \
\text { A } & \$ 7 \% & € 6 \% \
B & \$8 \% & € 5\%
\end{array}$$ Devise a direct swap for A and B that has no swap bank.Show their external borrowing.

Question

Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
 $$\begin{array} { l l l } 
& \$ & € \
\text { A } & \$ 7 \% & € 6 \% \
B & \$8 \% & € 5\%
\end{array}$$ Devise a direct swap for A and B that has no swap bank.Show their external borrowing.

Quizplus · Accepted Answer

The Answer of Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
 $$\begin{array} { l l l } 
& \$ & € \
\text { A } & \$ 7 \% & € 6 \% \
B & \$8 \% & € 5\%
\end{array}$$ Devise a direct swap for A and B that has no swap bank.Show their external borrowing.

Consider the Situation of Firm a and Firm B $€ A $7%€6%B$8%€5%\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array} A B​$$7%$8%​€€6%€5%​

Consider the Situation of Firm a and Firm B $\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$