1. Company A has a 5-year, 10% coupon, interest-only loan outstanding -- like a coupon bond. The loan is denominated in dollars and the par value is $100 million. Company B has a 5-year, 6% coupon, interest-only loan outstanding. B's loan is denominated in yen and has a par value of 15 billion. What are the interest and principal obligations on the loans? Company A's Loan Company B's Loan Year 1 2 3 4 5 The spot exchange rate is 0.007 $/4, and prevailing interest rates on similar-risk liabilities are 9% in the U.S. and 6.25% in Japan. If Companies A and B swapped liabilities today, would one company benefit at the expense of the other, or do you think this would be a fair trade? 2. Some managers in Company A are worried about credit risk in assuming B's yen liability. They fear that Company B might default on its half of the swap, exposing Company A to a loss. Do you think either company faces credit risk when swapping liabilities? 3. Immediately after making its second interest payment to the bank, Company B defaults on its obligation to the bank. If interest rates on what were similar-risk liabilities when the swap was first booked are now 6% in the U.S. and 8% in Japan, and if the spot rate is 0.006 $/4, what credit loss, if any, does the bank suffer? 4. Why would anyone want to swap