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.
US$ | Yen | |
Honda | 8.0% | 7.6% |
IBM | 5.4% | 6.6% |
Required
A. What is the total gain from the currency swap?
B. Which firm has the comparative advantage in US dollar market, IBM or Honda?
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Financial Institutions Management A Risk Management Approach
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
8th edition
978-0078034800, 78034809, 978-0071051590
