1. Pepper Corp. wants to finance an investment worth an amount equivalent to USD 114 million. It can borrow fixed-rate JPY at a rate of 4.65%, or it can borrow floating-rate USD at LIBOR + 0.21%. Truffles Corp. also faces a USD 114 million investment, and it can borrow fixed-rate JPY at a rate of 4.73%, or it can borrow floating-rate USD at LIBOR + 0.87%. Pepper Corp. would like to borrow fixed-rate JPY and Truffles Corp. would like to borrow floating-rate USD. What are the possible cost savings to Pepper Corp. in INR terms from a swap agreement if Westpac charges a fee of 8 basis points to arrange the swap? Assume all remaining cost savings accrue to Pepper Corp. Assume the current exchange rate is JPY64/USD.

Select one:

a. 36.4800 million

b. 0.0103 million

c. 42.3168 million

d. 0.0089 million

e. There are no cost savings to Pepper Corp. from a swap.

2.

ABC Company, an Australian firm, has a USD 385 million payable in one year. ABC is concerned that the exchange rate might change adversely.

It enters into a risk sharing arrangement with its supplier.

The AUD/USD base rate is set at 0.77. There is a neutral zone of 0.693 to 0.847. Outside of the neutral zone, the parties split the exchange rate change equally.

Suppose the final exchange rate is 0.9625, how much must ABC pay?

Select one:

a. 318.6837 million

b. 334.6179 million

c. 286.8154 million

d. 22.2337 million

e. 370.5625 million