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 $2.00 = 1.00, a swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR. USD Bid 8% A B Ask Bid Euro 8.1% 6% $ borrowing 8% 9% 7% Ask borrowing 6% 6.1% Is there a mutually beneficial swap? A) Yes, Firm A swaps with the swap bank, $ at bid and at ask. Firm B swans with the swan hank

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 $2.00=1.00, a swap bank makes the following quotes for 1 -year swaps and AAA-rated firms against USD LIBOR. $ borrowing borrowing A 8% B 9% Is there a mutually beneficial swap? A) Yes, Firm A swaps with the swap bank, $ at bid and at ask. Firm B Is there a mutually beneficial swap? A) Yes, Firm A swaps with the swap bank, $ at bid and at ask. Firm B swaps with the swap bank, $ at ask and at bid. Firms A and B would each save 90 basis points and the swap bank would earn 20 basis points. B) There is no mutually beneficial swap at these prices. C) Yes, Firm A swaps with the swap bank, $ at ask and at bid. Firm B swaps with the swap bank, $ at bid and at ask. Firms A and B would each save 90 basis points and the swap bank would earn 20 basis points. D) none of the options B) C) 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 $2.00=1.00, a swap bank makes the following quotes for 1 -year swaps and AAA-rated firms against USD LIBOR. $ borrowing borrowing A 8% B 9% Is there a mutually beneficial swap? A) Yes, Firm A swaps with the swap bank, $ at bid and at ask. Firm B Is there a mutually beneficial swap? A) Yes, Firm A swaps with the swap bank, $ at bid and at ask. Firm B swaps with the swap bank, $ at ask and at bid. Firms A and B would each save 90 basis points and the swap bank would earn 20 basis points. B) There is no mutually beneficial swap at these prices. C) Yes, Firm A swaps with the swap bank, $ at ask and at bid. Firm B swaps with the swap bank, $ at bid and at ask. Firms A and B would each save 90 basis points and the swap bank would earn 20 basis points. D) none of the options B) C)