Question
Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at a fixed rate, while IBM wants to borrow
Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at a fixed rate, while IBM wants to borrow Yen also for the following 5 years at a fixed rate. The rates available to two companies in US$ and Yen markets are shown below.
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| US$ | Yen |
| Honda | 8.0% | 7.6% |
| IBM | 5.4% | 6.6% |
- What is the total gain from the currency swap? (8 pts)
- Which firm has the comparative advantage in US dollar market, IBM or Honda? (7 pts)
Problem 2, continued:
In part c design a currency swap with a Financial Institution as an intermediary. Suppose that the financial institution will earn 8 basis points, the remaining total gain will be split equally between Honda and IBM.
- Complete chart below. Use text boxes near each arrow to indicate the interest rate and the currency in which it will be paid/received. (12 pts)
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Honda |
| Financial Institution |
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IBM |
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The Investment Code Ancient Jewish Wisdom For The Wise Investor
Authors: H. W. Charles
1st Edition
1533423466, 978-1533423467
