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CAN SOMEONE PLEASE EXPLAIN THIS. i DONT GET IT AT ALL PLEASE HELP 1. Come up with a swap (principal + interest) for two parties
CAN SOMEONE PLEASE EXPLAIN THIS. i DONT GET IT AT ALL PLEASE HELP
1. Come up with a swap (principal + interest) for two parties A and B who have the following borrowing opportunities AeLIBOR% $8% LIBOR + % $8.20% The current exchange rate is $1.60 1.00. An Italy Company "A" wishes to borrow $1,000,000 for 5 years and a U.S. "B" wants to borrow 625,000 for 5 years. You are a swap dealer. Quote A and B a swap that makes money for all parties and eliminates exchange rate risk for both A and B. Firms A and B are more concerned with what currency that they borrow in than whether the debt is fixed or floating. Step 2: Wearetoeiminate exchange raterisk far A and B Step 3: The QSDa .3% we have30 bptodistribute amang 3 payers. Let'stry 10bpf Step4: dheck aur wark A's all-in-cost: $75% B's all-in-cost: LIBOR + 4% Swap Bank Prdfit: 10 basis paints at current exchange rate areay neLIBOR% Bank $8.2% Step2 Step2) $7.9% (Step3) (Step1 8.2% (step 1) Outside Step1: A is better at barraving ; Lender Bis better at barrowing $ Outside Lender so havethem barrow externally accarding tother camparativeadvantageStep by Step Solution
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