The current spot exchange rate is $2/1. A U.S. company wants to fund a 5 million...

 

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The current spot exchange rate is $2/£1. A U.S. company wants to fund a £5 million U.K. investment with one-year euro commercial paper. A U.K. company wants to fund a $10 million U.S. investment with one- year U.S. dollar commercial paper. These companies' respective borrowing costs are summarized in the following table. What must be the values of A and B in the diagram for the U.S. and U.K. companies to be interested in a currency swap? Assume for simplicity that there is no bid-ask spread (that is, the swap bank does not earn a profit) and that the forward rate is $2.019/£1. U.S COMPANY - BORROWING COST(USD) = 8% U.S COMPANY - BORROWING COST(U.K) = 9% U.K COMPANY - BORROWING COST(USD) = 10% UK COMPANY - BORROWING COST(UK) = 7% Multiple chpice A = $8%; B = £7%. A = £7%; B = $8%. A = $8%; B = £9%. A = £9%; B = $10%. The current spot exchange rate is $2/£1. A U.S. company wants to fund a £5 million U.K. investment with one-year euro commercial paper. A U.K. company wants to fund a $10 million U.S. investment with one- year U.S. dollar commercial paper. These companies' respective borrowing costs are summarized in the following table. What must be the values of A and B in the diagram for the U.S. and U.K. companies to be interested in a currency swap? Assume for simplicity that there is no bid-ask spread (that is, the swap bank does not earn a profit) and that the forward rate is $2.019/£1. U.S COMPANY - BORROWING COST(USD) = 8% U.S COMPANY - BORROWING COST(U.K) = 9% U.K COMPANY - BORROWING COST(USD) = 10% UK COMPANY - BORROWING COST(UK) = 7% Multiple chpice A = $8%; B = £7%. A = £7%; B = $8%. A = $8%; B = £9%. A = £9%; B = $10%.

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Cost of US Company is 7 and UK Company is 8 Stepbystep explanation Current exchange rate is 1 2 So 5 ... View the full answer