Problem 6 Intro Tesla wants to borrow US dollars, while Volkswagen wants to borrow an equivalent amount in euros. The companies have been offered the following fixed interest rates for loans: Dollars Euros Tesla 6.2% 6.2% Volkswagen 4.5% 5.5% A bank that is willing to serve as the counterparty in a currency swap will take a commission of 0.3% per year. - Attempt 1/5 for 10 pts. Part 1 What should the companies do? Check all that apply: Tesla should should pay interest in dollars on a currency swap. v Volkswagen should pay interest in dollars on a currency swap. Tesla should borrow in dollars. V Volkswagen should borrow in dollars. Correct WW's interest rate is 1.7 percentage points lower for dollars loans, but only 0.7 wala thug Correct WW's interest rate is 1.7 percentage points lower for dollars loans, but only 0.7 percentage points lower for euro loans. Tesla thus has a comparative advantage in euro borrowing, while Volkswagen has a comparative advantage in dollar borrowing. Therefore, 1. Tesla should borrow in euros and VW should borrow in dollars. 2. The two companies should agree to a currency swap, where Tesla receives euros and pays dollars, while VW receives dollars and pays euros. 3. As a result, Tesla ends up paying interest in dollars, and WW ends up paying interest in euros. Part 2 | Attempt 1/4 for 10 pts. What interest rate should Tesla be paying to the swap counterparty (the bank) to make the swap equally attractive to both companies and have the bank take on all exchange rate risk? B+ decimals Submit Problem 6 Intro Tesla wants to borrow US dollars, while Volkswagen wants to borrow an equivalent amount in euros. The companies have been offered the following fixed interest rates for loans: Dollars Euros Tesla 6.2% 6.2% Volkswagen 4.5% 5.5% A bank that is willing to serve as the counterparty in a currency swap will take a commission of 0.3% per year. - Attempt 1/5 for 10 pts. Part 1 What should the companies do? Check all that apply: Tesla should should pay interest in dollars on a currency swap. v Volkswagen should pay interest in dollars on a currency swap. Tesla should borrow in dollars. V Volkswagen should borrow in dollars. Correct WW's interest rate is 1.7 percentage points lower for dollars loans, but only 0.7 wala thug Correct WW's interest rate is 1.7 percentage points lower for dollars loans, but only 0.7 percentage points lower for euro loans. Tesla thus has a comparative advantage in euro borrowing, while Volkswagen has a comparative advantage in dollar borrowing. Therefore, 1. Tesla should borrow in euros and VW should borrow in dollars. 2. The two companies should agree to a currency swap, where Tesla receives euros and pays dollars, while VW receives dollars and pays euros. 3. As a result, Tesla ends up paying interest in dollars, and WW ends up paying interest in euros. Part 2 | Attempt 1/4 for 10 pts. What interest rate should Tesla be paying to the swap counterparty (the bank) to make the swap equally attractive to both companies and have the bank take on all exchange rate risk? B+ decimals Submit