Company X wants to borrow $10,000,000 floating for 5 years; Company Y wants to borrow 5,000,000 fixed for 5 years. The exchange rate is $2 = 1. Their external borrowing opportunities are:

	$ Borrowing				Borrowing
	Cost				Cost
Company X	$	10%				10.5%
Company Y	$	12%				13%

A swap bank proposes the following swap: Company X will pay the swap bank annual payments on $10,000,000 at an interest rate of $9.80 percent; in exchange the swap bank will pay to company X interest payments on 5,000,000 at a fixed rate of 10.5 percent. Y will pay the swap bank interest payments on 5,000,000 at a fixed rate of 12.80 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of $12 percent. Principal amounts will be exchanged and re-exchanged, respectively, at inception and maturity.

If company X takes on the swap, what external action should it engage in?

Group of answer choices

It should borrow 5,000,000 at 12.80 percent for five years.

None of the options are correct.

It should borrow $10,000,000 at $10 percent.

It should borrow 5,000,000 at 10.50 percent for five years; translate pounds to dollars at the spot rate.