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Company X wants to borrow $10,000,000 floating for 1 year; company Y wants to borrow 5,000,000 fixed for 1 year. The spot exchange rate is
Company X wants to borrow $10,000,000 floating for 1 year; company Y wants to borrow 5,000,000 fixed for 1 year. The spot exchange rate is $2=1 and IRP calculates the one-year forward rate as $2.001.08/(1.001.06)=$2.0377/1. Their external borrowing opportunities are: A swap bank wants to design a profitable fixed-for-fixed currency swap. In order for X and Y to be interested, they can face no exchange rate risk. Company X A) is probably British. B) is probably American. has a comparative advantage in borrowing pounds. D) is probably British and has a comparative advantage in borrowing pounds
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