3 Currency swaps Suppose that Bourne Co is a U S based MNC with a subsidiary in the U K that primarily deals in pounds Suppose also that Goodwin is a U K based MNC with a subsidiary in the U S that deals primarily in dollars Suppose that Bourne s U K subsidiary would like to issue bonds denominated in pounds, so that it can to use its pound inflows to pay the debt However, Bourne is not well known enough in the pound bond market to attract investors Similarly, Goodwin s U S subsidiary would like to issue bonds denominated in dollars, so that it can to use its dollar inflows to pay the debt However, Goodwin is not well known enough in the dollar bond market to attract investors Bourne and Goodwin have agreed to engage in a currency swap In such a swap, would issue bonds denominated in dollars while would issue bonds denominated in pounds would provide pound to in exchange for dollar payments Grade It Now Save Continue

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Question: 3 . Currency swaps Suppose that Bourne Co . is a U . S . - based MNC with a subsidiary in the U .

3 .

Currency swaps

Suppose that Bourne Co

.

is a U

.

. -

based MNC with a subsidiary in the U

.

.

that primarily deals in pounds. Suppose also that Goodwin is a U

.

. -

based MNC with a subsidiary in the U

.

.

that deals primarily in dollars.

Suppose that Bourne

s U

.

.

subsidiary would like to issue bonds denominated in pounds, so that it can to use its pound inflows to pay the debt. However, Bourne is not well known enough in the pound bond market to attract investors.

Similarly, Goodwin

s U

.

.

subsidiary would like to issue bonds denominated in dollars, so that it can to use its dollar inflows to pay the debt. However, Goodwin is not well known enough in the dollar bond market to attract investors.

Bourne and Goodwin have agreed to engage in a currency swap.

In such a swap,

would issue bonds denominated in dollars while

would issue bonds denominated in pounds.

would provide pound to

in exchange for dollar payments.

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