Currency swaps

	Dollars	Yen
Firm A	8.0%	8.4%
Firm B	6.4%	7.8%

The table shows borrowing rates in two currencies.

a) Which firm is more credit-worthy?

b) Which firm has a comparative advantage in borrowing yen?

c) Which firm has a comparative advantage in borrowing dollars?

d) The current exchange rate is 100 yen/dollar. Firm A wants to borrow

$10 million. Firm B wants to borrow 1 billion yen. Create and very clearly explain a swap that benefits both parties.