Question
Assume the following borrowing rates of two firms in the GBP and USD: A B GBP 8.4% 9.0% USD 7.0% 8.0% A wants to borrow
Assume the following borrowing rates of two firms in the GBP and USD:
A B
GBP 8.4% 9.0%
USD 7.0% 8.0%
A wants to borrow GBP and B wants to borrow USD.
(a) What is the maximum possible cost saving to both firms from engaging in a currency swap?
(b) Which currency should each firm borrow and what is their effective interest rate if they split the cost savings equally?
(c) What are the interest payment flows that will enable the two firms to split the cost savings equally?
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Personal Finance Turning Money into Wealth
Authors: Arthur J. Keown
8th edition
134730364, 978-0134730363
