Question: I need assistance with this HW exercise, could you verify and check that the first 3 parts are correct. I don't understand how to approach

I need assistance with this HW exercise, could you verify and check that the first 3 parts are correct.

I don't understand how to approach the last part as well.

Currency swaps

Dollars

Yen

Firm A

8.0%

8.4%

Firm B

6.4%

7.8%

The table shows borrowing rates in two currencies.

1. Which firm is more credit-worthy?

B is more credit worthy because it can borrow at a lower rate in the dollars or Yen market.

2. Which firm has a comparative advantage in borrowing yen?

Firm B has a comparative advantage in borrowing yen.

3. Which firm has a comparative advantage in borrowing dollars?

Firm A has a comparative advantage.

4. The current exchange rate is 100 yen/dollar. Firm A wants to borrow $10 million.

Firm B wants to borrow 1 billion yen. Create and clearly explain a swap that benefits both parties.

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