An investor is interested to borrow EUR 1,000,000. Assume that the USD/EUR spot rate is 1.25 and the p.a. interest rates are 3% for USD and 4% for EUR. Check that, if the tax rate is 30% and the taxes are neutral, investor is indifferent between a direct EUR loan or a swapped EUR loan. What if investor does not have to pay taxes on capital gains?

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To determine whether the investor is indifferent between a direct EUR loan or a swapped EUR loan we ... View the full answer