ABC PLC is based in the UK and would like to borrow $120,000 for one year to expand to the US market.

DEF PLC is based in the US and would like to borrow 100,000 for one year to expand to the UK market.

The GBPUSD exchange rate is 1.20. The table below presents the annual rates the companies can borrow at: Borrow in $ Borrow in ABC PLC 4.5% 3.2% DEF PLC 3.6% 4.7%

Identify the total surplus that can be achieved by negotiating a currency swap, assuming the exchange rate remains unchanged a) 0 b) 1,100 c) 1,300 d) 2,400 e) 6,800

If the currency swap is intermediated by a financial institution, identify the maximum margin the institution can charge for the swap to be mutually beneficial a) 0bps b) 89bps c) 109bps d) 129bps e) 149bps