A. Boeing needs JPY110b to buy a parts manufacturing plant in Japan. Nippon Airline needs $100m to buy new aircraft for its fleet. Boeing can issue bonds at 6% in USD, and 7% in JPY. Nippon Airline can issue bonds at 8% in UDD, and 6% in JPY. What is the QSD, quality spread differential, in percent?

B. What is swap to fully capture the QSD between Boeing and Nippon Airline? Assume they agree to share equally on the QSD.

a.Boeing pays 6.5% to Nippon Airline, and Nippon Airline pays 6.5% to Boeing.

b.Boeing pays 5.5% to Nippon Airline, and Nippon Airline pays 6% to Boeing.

c.Boeing pays 6.25% to Nippon Airline, and Nippon Airline pays 6.25% to Boeing.

d.Boeing pays 6% to Nippon Airline, and Nippon Airline pays 6.5% to Boeing.

Answer rating: 100% (QA)

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