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Tesla wants to borrow US dollars, while Volkswagen wants to borrow an equivalent amount in euros. The companies have been offered the following fixed interest
Tesla wants to borrow US dollars, while Volkswagen wants to borrow an equivalent amount in euros. The companies have been offered the following fixed interest rates for loans: A bank that is willing to serve as the counterparty in a currency swap will take a commission of 0.4% per year. What interest rate should Tesla be paying to the swap counterparty (the bank) to make the swap equally attractive to both companies and have the bank take on all exchange rate risk? Tesla wants to borrow US dollars, while Volkswagen wants to borrow an equivalent amount in euros. The companies have been offered the following fixed interest rates for loans: A bank that is willing to serve as the counterparty in a currency swap will take a commission of 0.4% per year. What interest rate should Tesla be paying to the swap counterparty (the bank) to make the swap equally attractive to both companies and have the bank take on all exchange rate risk
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