Question
Disney wants to borrow Euro at a fixed rate of interest. Volkswagen wants to borrow US dollar at a fixed rate of interest. In terms
Disney wants to borrow Euro at a fixed rate of interest. Volkswagen wants to borrow US dollar at a fixed rate of interest. In terms of borrowing costs, they face the following rates per annum:
| Euro | US Dollar | |
| Disney | 7.25% | 3.50% |
| Volkswagen | 3.25% | 1.00% |
To create a Swap contract between Disney and Volkswagen, which of the following is Correct?
(A) Disney has comparative advantage in Euro; Volkswagen has comparative advantage in US dollar
(B) Volkswagen has comparative advantage in Euro; Disney has comparative advantage in US dollar
(C) Disney has comparative advantage in both Euro and US dollar
(D) Volkswagen has comparative advantage in both Euro and US dollar
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Investment Science
Authors: David G. Luenberger
1st International Edition
0195391063, 9780195391060
