Consider a fixed for fixed currency swap. AAA Corp. is a U.S.-based multinational. BBB Ltd. is a U.K.-

based multinational. AAA wants to finance a 2 million expansion in Great Britain. BBB wants to

finance a $4 million expansion in the U.S. The spot exchange rate is 2 $/. AAA can borrow USD at

10% and GBP at 12%. BBB can borrow USD at 9% and GBP at 10%. Assume that the swap bank (who

must get an expected profit from the transaction) is willing to take on exchange risk, while the two

companies want to have zero exposure to exchange rate risk. Which of the following swaps is mutually

beneficial to each party and meets their financing needs?

A) AAA Corp. issues a USD 4 million bond at 10%, receives a USD 10% payment from the bank, and

it pays the bank GBP 11.75%. BBB Ltd. issues a GBP 2 million bond at 10%, receives a GBP 10%

payment from the bank, and it pays the bank USD 8.75%.

B) AAA Corp. issues a USD 4 million bond at 10%, receives a USD 10% payment from the bank, and

it pays the bank GBP 11.50%. BBB Ltd. issues a GBP 2 million bond at 10%, receives a GBP 10%

payment from the bank, and it pays the bank USD 8.50%.

C) AAA Corp. issues a USD 4 million bond at 10%, receives a USD 8% payment from the bank, and it

pays the bank GBP 11.00%. BBB Ltd. issues a GBP 2 million bond at 10%, receives a GBP 11%

payment from the bank, and it pays the bank USD 10%.

D) It is not possible to design a swap mutually beneficial for all the parties involved.