Firm A is a U.S. MNC who wants to finance a pound denominated asset in England,...

  

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Firm A is a U.S. MNC who wants to finance a pound denominated asset in England, and therefore wants to borrow 40 million pounds for 5 years. A can borrow pounds at 6% annual rate and borrow dollar at 2% annual rate. Firm B is a British MNC who wants to finance a dollar denominated asset, and therefore wants to borrow 60 million dollars for 5 years. B can borrow dollars at 3% and borrow pounds at 4% annual rate. Assume 1 pound=1.5 dollar. Establish currency swap assuming a swap bank involved in the deal and its quotation as follows. What is the cost for A and B after the swap? Profits to swap bank and cost savings for A and B? quotation from swap bank Pound bid ask 4.0% 4.5% Dollar 2.0% 2.5% Firm A is a U.S. MNC who wants to finance a pound denominated asset in England, and therefore wants to borrow 40 million pounds for 5 years. A can borrow pounds at 6% annual rate and borrow dollar at 2% annual rate. Firm B is a British MNC who wants to finance a dollar denominated asset, and therefore wants to borrow 60 million dollars for 5 years. B can borrow dollars at 3% and borrow pounds at 4% annual rate. Assume 1 pound=1.5 dollar. Establish currency swap assuming a swap bank involved in the deal and its quotation as follows. What is the cost for A and B after the swap? Profits to swap bank and cost savings for A and B? quotation from swap bank Pound bid ask 4.0% 4.5% Dollar 2.0% 2.5%

Answer rating: 100% (QA)

Currency Swap Analysis This scenario presents a perfect opportunity for a currency swap to benefit both Firm A and Firm B Heres a breakdown of the sit... View the full answer