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7*.[4 points] Company A, a French manufacturer, wishes to borrow U.S. dollars at a fixed rate of interest for one year Company B, a U.S.
7*.[4 points] Company A, a French manufacturer, wishes to borrow U.S. dollars at a fixed rate of interest for one year Company B, a U.S. multinational, whishes to borrow euro at a fixed rate of interest for one year. They have been quoted the following rates per annum (adjusted for differential tax effects) Compan Company A Company B Euro 85% 9% U.S. Dollar 5.0% 4.2% Design a swap that: (i)-will net a bank, acting as intermediary, 15% of QSD (quality spread differential) per annum in euro and 15% of the QDS in the US. dollars; and (ii)-will generate a gain of 35% of QSD per annum for A and 35% of OSD for company B. (3 Points) a. QSD Co.A Bank Co. B b. Suppose that the notional value of swap is S145 millions and 100 millions at the initial spot exchange rate of $1.45 0 Calculate gains (losses) for the intermediary bank if the exchange rate will be $1.90 one year from now. Explicitly show Bank's gains or losses in each currency after one year
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