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Consider the following fixed borrowing rates available to Pepper Corp and to Teddy Corp in both the British pound (GBP) and the Euro (EUR): GBP
Consider the following fixed borrowing rates available to Pepper Corp and to Teddy Corp in both the British pound (GBP) and the Euro (EUR): GBP rate EUR rate Pepper Corp Teddy Corp 9.50% p.a. 11.90% p.a. 13.00% p.a. 18.40% p.a. One firm has an absolute advantage in borrowing in both currencies. Assume that each firm borrows at its comparative advantage and then enters into a swap with a financial intermediary. Under the swap, the financial intermediary makes the payments to the firms that each need to cover the loans borrowed at their comparative advantages. In exchange, the financial intermediary requires payment at 17.90% p.a. in the Euro from the firm that has a comparative advantage in borrowing the British pound, while also requiring payment at 8.90% p.a. in the British pound from the other firm. What is the net benefit to the intermediary from such a swap? Select one: a. 9.00% p.a. O b. 3.00% p.a. O O c. 1.90% p.a. d. 1.50% p.a. e. This swap would be a net loss to the financial intermediary
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