Question 4 A is a US-based MNC with AAA credit, B is an Italian firm with AAA credit. Firm A wants to borrow 1,000,000 for one year and B (see wants to borrow $2,000,000 for one year. The spot exchange rate is $2.00 1.00. The firms' extemal borrowing opportunities are Tablel) borrowing S borrowing $8% 7% A $9% 6% A swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR (see Table2): Euro USD Ask Bid Ask Bid 8 o 6.1 6 8.1 O Firm A does 2 swaps with the swap bank, S at bid and e at ask. Firm B does 2 swaps with the swap bank, $ at ask and at bid. Firms A and B would each save 90bp and the swap bank would earn 20bp. There is no mutually beneficial swap at these prices Firm A does 2 swaps with the swap bank, S at ask and at bid. Firm B does 2 swaps with the swap bank, $ at bid and Firms A and B would each save 90bp and the swap bank would eam 20bp. at ask None of the above Question 4 A is a US-based MNC with AAA credit, B is an Italian firm with AAA credit. Firm A wants to borrow 1,000,000 for one year and B (see wants to borrow $2,000,000 for one year. The spot exchange rate is $2.00 1.00. The firms' extemal borrowing opportunities are Tablel) borrowing S borrowing $8% 7% A $9% 6% A swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR (see Table2): Euro USD Ask Bid Ask Bid 8 o 6.1 6 8.1 O Firm A does 2 swaps with the swap bank, S at bid and e at ask. Firm B does 2 swaps with the swap bank, $ at ask and at bid. Firms A and B would each save 90bp and the swap bank would earn 20bp. There is no mutually beneficial swap at these prices Firm A does 2 swaps with the swap bank, S at ask and at bid. Firm B does 2 swaps with the swap bank, $ at bid and Firms A and B would each save 90bp and the swap bank would eam 20bp. at ask None of the above