Company A, a US multinational corporation requires 50,000,000 for five years.

The exchange rate is $1.14/ and Company B, a European multinational corporation, requires the equivalent dollar amount, $57,000,000 (rounded) for five years.

Their borrowing options are given in the table below. The interest rates are annual rates.

"Original" Terms:

Counterparty Dollar-denominated debt Euro-denominated debt

A 4.84% 4.30%

B 5.95% 4.70%

Suppose that a swap bank offers the following terms:

Dollars: 4.80% - 5.25%

Euros: 4.10% - 4.20%

Company A: Borrows $57,000,000 at the terms above with the intention of swapping debt service into euros. This means they will pay the swap bank 4.20% on the euro value of the debt, in exchange for 4.8% on dollar debt from the swap bank.

Company B: Borrows 50,000,000 at the terms above with the intention of swapping debt service into dollars. This means they will pay the swap bank 5.25% on the dollar value of the debt, in exchange for 4.10% on euro debt from the swap bank.

Recommended: use a diagram to work out your answer on paper.

Complete the following sentences.

Enter in whole number form. Do not include the % symbol and do not represent as a decimal. For example, if the net interest is 82.35%, enter 82.35. Do not enter 82.35%. Do not enter .8235.

1. Company As net interest after the swap will be (A) %. Therefore, compared to their independent borrowing alternatives, they will save a total amount of (B) euros over 5 years.

2. Company Bs net interest after the swap will be (A) %. Therefore, compared to their independent borrowing alternatives, they will save a total amount of (B) dollars over 5 years.

3. What percent does the swap dealer make? %