b .A U.S Multinational Company wants to finance a 65, 000,000 expansion project of an Italian plant which is relatively new. The company has a number of options. They could borrow US dollars and convert it to euros to finance the project, but they may be exposed to exchange rate risk. They could also borrow in Italy but could suffer high interest rate in Italy since the company is relatively new. They therefore decide to use the third option of finding a counterparty to set up a currency swap. Fortunately, for the company they find a counter party who is willing to enter into a currency swap to exchange the equivalence of 65, 000,000 dollars. Currently, the spot exchange rate, is $/ =1.2. Their borrowing opportunities are given as follows:

	$
U.S MNC (Say company A)	8.0%	7.0%
French company (Company B)	9.0%	6.0%

Required:

1. Discuss two advantages of currency swap transaction to the swap counterparties
2. What is the equivalent dollar borrowing that the Italian company will need in order for the swap arrangement to be successful
3. Based on the comparative advantage enjoyed by each company in their respective home countries, what will be the net savings expected to be enjoyed by each of the counterparties if the swap agreement is concluded. Explain your answer
4. If they enter into fixed for fixed currency swap, indicate the annual payment made to each of the parties to the Swap contract 9.5 Marks