A US MNC desires to finance a capital expenditure of its German subsidiary. The project has an

Question:

A US MNC desires to finance a capital expenditure of its German subsidiary. The project has an economic life of five years.
A German MNC of equivalent creditworthiness desires to finance a capital expenditure of its US subsidiary. The project has an economic life of five years.
Both MNCs want the equivalent of $52,000,000 in fixed-rate financing for five years.
The current spot is $1.30/1.00 (euro)
US MNC can issue dollar denominated debt at a rate of 8% or euro-denominated debt at a rate of 7%
German MNC can issue dollar-denominated debt at a rate of 9% or euro-denominated debt at a rate of 6%.
(Assume a swap bank is not involved for the questions following)
1. Please indicate currency and amount needed by each MNC.
2. Please explain risks faced by each MNC in connection with desired financing.
3. Please develop a hedging strategy (other than futures, forwards, and options) for each MNC.
4. Please indicate amount of annual interest payments each MNC will make and receive for the next five years.
5. Please indicate principal payments each MBC will make at the end of year 5.
6. Please explain how each MNC benefitted from your hedging strategy (indicate amunt saved and risks managed)
7. If a swap bank charges US MNC 6.1% and German MNC 8.15% for services in connection with the currency swap, and MNCs external borrowing cost remains the same, please indicate the following:
a. Amount of profit realized by swap bank
b. Whether it is still beneficial for MNCs to enter into currency swap (ie indicate net reduced cost or net additional cost).
A US MNC desires to finance a capital expenditure of its German subsidiary. The project has an economic life of five years.
A German MNC of equivalent creditworthiness desires to finance a capital expenditure of its US subsidiary. The project has an economic life of five years.
Both MNCs want the equivalent of $52,000,000 in fixed-rate financing for five years.The current spot is $1.30/1.00 (euro)
US MNC can issue dollar denominated debt at a rate of 8% or euro-denominated debt at a rate of 7%
German MNC can issue dollar-denominated debt at a rate of 9% or euro-denominated debt at a rate of 6%.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...