1. Suppose that Thales would like to borrow fixed-rate yen, whereas Korea Development Bank would like to borrow floating rate US dollars. Thales can borrow fixed-rate at 4.9% or floating $ at LIBOR + 0.25%. KDB can borrow fixed rate 4.5% for the and LIBOR +0.8% for the $.

1. What are the possible cost savings that Thales can realize through an interest rate/currency swap with KDB?

2. Assuming a notional principal of $125 million, and spot rate 105/$, what do the possible cost savings translate into in Japanese yen terms?