$2$

Consider the dollar$-$and euro$-$based borrowing opportunities of companies A and B $.$

$1$

$10$

st of

estion

A

$7\%$

$ $8\%$

B

$6\%$

$ $9\%$

A is a U$.$S$.-$based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow $1,000,000$ for one year and B wants to borrow $$2,000,000$ for one year. The spot exchange rate is $$2\mathrm{.}00=1\mathrm{.}00$ and the one$-$year forward rate is given by IRP as $$2\mathrm{.}00\frac{1\mathrm{.}08}{}1\mathrm{.}00(1\mathrm{.}06)=$$$\frac{2\mathrm{.}0377}{}1.$

Is there a mutually beneficial swap?

Select one:

a$.No,QSD=0$

b$.$ Yes, QSD $=2\%=(7\%-6\%)-(8\%-9\%)=1\%-(-1\%)$

c$.$ Yes, QSD $=$$$3\%=[7\%-6\%]$$$\frac{2\mathrm{.}00}{}1\mathrm{.}00-($$$8\%-$$$9\%)=$$$2\%+$$$1\%$

d$.$ Yes, QSD $=\frac{11}{2}\%=[7\%-6\%]-($$$8\%-$$$9\%)\frac{1\mathrm{.}00}{\text{\$}}2\mathrm{.}00$