Q4. Suppose that GE and L'Oral S.A. need to issue bonds to finance their new projects. The table below summarizes their costs:

Borrow in USD

Borrow in EUR

GE

9.42%

8.27%

L'Oral S.A.

10.11%

9.17%

Which firm has a comparative advantage when borrowing euros? Why?

Suppose that because of currency risk GE would prefer to have dollar debt and L'Oral S.A. would prefer euro debt. Can you devise a swap that would allow each firm to borrow in their preferred currency at an attractive rate?