D Question 2 Smart Tech and Fancy Robots are both Australian high-tech companies that have expanded into international markets. The current 5-year borrowing costs (per annum) of the companies are: Company Smart Tech Fancy Robots USD 3.70% 3.45% 12 pts EUR 2.88% 3.18% Smart Tech has completed a takeover deal with a United States partner and is seeking a loan of USD240 million to pay for the acquired firm. At the same time, Fancy Robots has established subsidiaries in Europe in recent years and would like to issue euro-denominated bonds equivalent to USD240 million to mitigate its exchange rate risk. The swap desk at UBS is quoting rates for 5-year currency swaps versus 1-year USD SOFR (assuming annual payments) as follows: United States dollars: 3.45% bid and 3.55% offered Euros: 2.88% bid and 2.98% offered You have been assigned by UBS to advise Smart Tech and Fancy Robots on their financing activities. A. Which firm has a comparative advantage when borrowing United States dollars? Which firm has a comparative advantage when borrowing euros? (1 point) B. How could UBS structure a currency swap that would allow each of the firms to borrow in the currency in which the firm has a comparative advantage while respecting the firms' preferences about currency risks? Calculate the interest rate savings for each company and UBS's fees in percentage terms (5 points) If Smart Toch enters into the currency swan with LIRS what will he Smart Toch's cash flows at the Edit D. Assume that three years have passed since Smart Tech and Fancy Robots entered into the currency swap with UBS. Assume that the new spot exchange rate is USD1.45/EUR, that the 2-year USD interest rate is 3.15% and the 2-year EUR interest rate is 3.80%. If Smart Tech closes out the currency swap immediately after the interest payments are exchanged at the end of the third year, what net dollar cash flow in United States dollars will it experience? You can assume that the term structures of interest rates in both currencies are flat. (3 points) 12pt which the firm has a comparative advantage while respecting the firms' preferences about currency risks? Calculate the interest rate savings for each company and UBS's fees in percentage terms (5 points) O C. If Smart Tech enters into the currency swap with UBS, what will be Smart Tech's cash flows at the beginning of the swap and for each of the next five years? The spot exchange rate at the beginning of the swap is USD1.20/EUR. (3 points) View Insert Format Tools Table Paragraph BI UA TO T V >