Sumatera Ltd Co. is an Indonesian-based company and Lavin Ltd Co is a French-based company are negotiating a direct cross-currency swap. They have identified that it is possible to take advantage of a net borrowing differential in order to lower net borrowing costs by 80 basis points. However, in the end, the board of directors of each company decides to establish intermediated cross-currency swaps, even though the intermediary will take a spread of 0.15 per cent.

Question 1: Analyse and discuss why the companies may have decided to proceed with the less profitable intermediated cross-currency swap.