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General Electric (GE) Qantas Airways 9% 11% 7.5% 8.5% The Qantas would like to borrow $25 million for five years in US, while GE would
General Electric (GE) Qantas Airways 9% 11% 7.5% 8.5% The Qantas would like to borrow $25 million for five years in US, while GE would like to issue a 5-year A$31.25 million bond in Australia. A swap dealer suggested to the firms that they could benefit by borrowing in the market where they have a comparative advantage and then agreeing on a fixed-for-fixed currency swap to revert to the currency they desired for their loan. Assume that both firms will equally share the potential benefits from the swap. What is the total interest rate benefit (total pie) to be shared by both firms with the comparative advantage and swap contract than without the swap? O 1.5% O 3% O 1%
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