A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit....

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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 Euro Bid 8% Ask 8.1% Bid 6% Ask 6.1% The firms external borrowing opportunities are borrowing $ borrowing A 7% B 6% $ 8% $ 9% Is there a mutually beneficial swap? 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 Euro Bid 8% Ask 8.1% Bid 6% Ask 6.1% The firms external borrowing opportunities are borrowing $ borrowing A 7% B 6% $ 8% $ 9% Is there a mutually beneficial swap?

Answer rating: 100% (QA)

Answer Yes there exists a mutually beneficial swap opportunity for both firms A and B Heres the brea... View the full answer