Question: Firms A and B face the following borrowing rates for making a five-year fixed-rate debt issue in U.S. dollars or Swiss francs: Suppose that A

Firms A and B face the following borrowing rates for making a five-year fixed-rate debt issue in U.S. dollars or Swiss francs:

U.S. Dollars Swiss Francs Firm A 10% 7% Firm B 8 6

Suppose that A wishes to borrow U.S. dollars and B wishes to borrow Swiss francs. Show how a swap could be used to reduce the borrowing costs of each company. Assume a spot exchange rate of 2 Swiss francs perdollar.

U.S. Dollars Swiss Francs Firm A 10% 7% Firm B 8 6

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