Question
Consider the dollar- and euro-based borrowing opportunities of companies A and B. borrowing $ borrowing A 7 % $ 8 % B 6 % $
Consider the dollar- and euro-based borrowing opportunities of companies A and B.
|
| borrowing |
| $ borrowing |
| ||||||
| A | 7 | % |
| $ | 8 | % | ||||
| B | 6 | % |
| $ | 9 | % | ||||
A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow 1,000,000 for one year and B wants to borrow $2,000,000 for one year. The spot exchange rate is $2.00 = 1.00 and the one-year forward rate is given by IRP as
Suppose they agree to the swap shown here. Is this mutually beneficial swap equally fair to both parties?
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Remittances And International Development
Authors: Sabith Khan, Daisha Merritt
1st Edition
0367521881, 978-0367521882
