A U.S. MNC and a French MNC need to borrow for their foreign direct investments. They...

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A U.S. MNC and a French MNC need to borrow for their foreign direct investments. They can issue 10 year bond of $220 million or 10 year bond of $200 million at the terms summarized below. A swap bank quote the 10-year currency swaps as $7.5% -7.6% and €8.1%-8.15%. $ U.S. MNC French MNC 7.5% 7.7% 8.25% 8.10% 1.Discuss the challenges encountered by the above MNCs in financing for their foreign direct investments. 2. Demonstrate with calculations how the two MNCs benefit from the use of currency swaps. 3. Two years after the initiation of the 10-year currency swaps, interest rates have changed to $7% -7.25% and €8%-8.125%, and exchange rate changed to $1.2/E. Calculate the value of the currency swap used by each MNC. Which MINC is willing to unwind the original swap? Explain with calculations. A U.S. MNC and a French MNC need to borrow for their foreign direct investments. They can issue 10 year bond of $220 million or 10 year bond of $200 million at the terms summarized below. A swap bank quote the 10-year currency swaps as $7.5% -7.6% and €8.1%-8.15%. $ U.S. MNC French MNC 7.5% 7.7% 8.25% 8.10% 1.Discuss the challenges encountered by the above MNCs in financing for their foreign direct investments. 2. Demonstrate with calculations how the two MNCs benefit from the use of currency swaps. 3. Two years after the initiation of the 10-year currency swaps, interest rates have changed to $7% -7.25% and €8%-8.125%, and exchange rate changed to $1.2/E. Calculate the value of the currency swap used by each MNC. Which MINC is willing to unwind the original swap? Explain with calculations.

Answer rating: 100% (QA)

SOLUTION 1 Challenges in financing FDIs Currency risk as investments are denominated in foreign curr... View the full answer