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1. Suppose a U.S. Company called XXX who wants to finance a Euros 100,000 investment in France. They could borrow dollars in the U.S. where

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1. Suppose a U.S. Company called XXX who wants to finance a Euros 100,000 investment in France. They could borrow dollars in the U.S. where they are well known and exchange dollars for Euros but this will give them exchange rate risk. They could borrow euros in the international bond market, but pay a premium since they are not as well known abroad. If the spot exchange rate is So(S/E) $1.17/, the U.S. firm Found YYY a Spanish-based multinational firm wanting to finance dollar borrowing in the amount of $117,000. Their borrowing opportunities are given in the table below. Euros 13% 11% US Dollars 8.5% 10% | A swap bank makes this offer to company XXX: You pay us i 1.4% per year on 100,000 for 5 years and we will pay you 8.5% per year on $117,000 for 5 years. & this offer to Company YYY: You pay us 9.5% per year on $11 7,000 for 5 years and we will pay you 11% per year on 100,000 for 5 years. Compute the gain from the swap for c. Swap Bank

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