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Companies A and B want to borrow the equivalent to 10 million each for 5 years (they want to issue debt). The market offers them
Companies A and B want to borrow the equivalent to 10 million each for 5 years (they want to issue debt). The market offers them the following alternatives in EUR and USD (the EURUSD exchange rate is USD 1.0 = EUR 1.0). Company A) EUR rate: 3.1%, USD rate: 3.5%. Company EUR rate: 6.0%, USD rate: 7.5%. A financial institution arranges a swap where it charges 10 basis points (0.1%) per year. The swap was organized so that it is equally attractive to both companies and all the exchange rate risk is born by the financial institution. What is the net rate of interest that will end up paying company A?
Select one:
a.
2.1% in EUR
b.
2.5% in USD
c.
3.0% in USD
d.
2.6% in EUR
e.
3.5% in USD
f.
3.1% in EUR
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