Company X wishes to borrow U.S dollars at a fixed rate of interest. Company Y wishes to borrow Japanese Yen at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates at which banks are confident they can place these bonds with investors. Yen USD Company X5.00%6.20% Company Y6.00%6.40% The bank advises both companies that they can get better terms by issuing in the non-desired currency and swapping the proceeds into the desired currency. Which of the following statements is correct? There is nothing to be gained from a currency swap in this example Correct Answer In the currency swap, company Y will pay Yen fixed rate while company X will pay USD fixed rate In the initial exchange of principal on the currency swap, company X receives Yen and company Y receives USD Incorrect Response The total gain the companies and bank can share is 120 basis points