Company A can borrow fixed-rate dollars at 3% or Euros as 6%. Company B can borrow dollars at 4% or Euros at 5%.

If these companies were to enter into a swap agreement to lower their costs of borrowing, answer the following questions: (Show calculations to receive credit)

a. Which company would borrow dollars? Why?

b. Which company would borrow Euros? Why?

c. How much in total could they save using a swap?

d. If firm A receives all the swap benefits as savings, demonstrate how these companies would use a swap to lower their cost of debt, by creating an example using the numbers above.

Answer rating: 100% (QA)

a Company A would borrow dollars as it is cheaper to it b Company B would borrow Eurosas ... View the full answer