A French corporation plans to invest in Thailand to develop a local subsidiary to promote its French

Question:

A French plans to invest in Thailand to develop a local subsidiary to promote its French products. The creation of this subsidiary should help boost its exports from France. The Thai baht is pegged to a basket of currencies dominated by the U.S. dollar, so borrowing in U.S. dollars would reduce the currency risk on this investment. The needs to borrow $20 million for five years. A bank has proposed a five-Near dollar loan at 7.75 percent. The French government wishes to support this type of foreign investment helping French exports. A French government agency can subsidize a 1.50 percent improvement in euro interest costs. In other words, the can get a five-year. €22 million loan at 7.5 percent instead of the current market rate of 9 percent. The current spot is €1.1 per dollar. A bank offers to write a currency swap for a principal of $20 million, whereby the would pay dollars at 7.75 percent and receive euros at 9 percent. What could the do to obtain a loan in dollars, its desired currency position, while capturing the French interest rate subsidy? What is the cost saving compared with directly borrowing in dollars? Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...