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Consider the situation of firm A and firm B. The current exchange rate is $2.00/ Firm A is a U.S. MNC and wants to borrow
Consider the situation of firm A and firm B. The current exchange rate is $2.00/ Firm A is a U.S. MNC and wants to borrow 30 million for 2 years Firm B is a British MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown, both firms have AAA credit ratings. B $ $6% $7% E 5% E4% The IRP 1-year and 2-year forward exchange rates are F( ${) $2.00 x (1.06) +1.00 x (1.04) $2.0385 +1.00 $2.00 X (1.06) 1.00 (1.04) $2.0777 1.00 USD Bid Ask 6% 6.1% pounds Bid Ask 4% 4.1% Explain how this opportunity affects which swap firm B will be willing to participate in
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