Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at
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Question:
Consider two companies: Honda and IBM.
Honda wants to borrow US$ for the following 5 years at a fixed rate, while IBM wants to borrow Yen also for the following 5 years at a fixed rate. The rates available to two companies in US$ and Yen markets are shown below.
US$ | Yen | |
Honda | 8.0% | 7.6% |
IBM | 5.4% | 6.6% |
Required
A. What is the total gain from the currency swap?
B. Which firm has the comparative advantage in US dollar market, IBM or Honda?
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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