The Centralia Corporation is a U.S. manufacturer of small kitchen electrical appliances. It has decided to construct a wholly owned manufacturing facility in Zaragoza, Spain, to manufacture microwave ovens for sale in the European Union. The plant is expected to cost 5, 500,000, and to take about one year to complete. The plant is to be financed over its economic life of eight years. The borrowing capacity created by this capital expenditure is $2, 900,000; the remainder of the plant will be equity financed. Centralia is not well known in the Spanish or international bond market; consequently, it would have to pay 7 percent per annum to borrow euros, whereas the normal borrowing rate in the euro zone for well-known firms of equivalent risk is 6 percent. Alternatively, Centralia can borrow dollars in the U.S. at a rate of 8 percent. Suppose a Spanish MNC has a mirror-image situation and needs $2, 900,000 to finance a capital expenditure of one of its U.S. subsidiaries. It finds that it must pay a 9 percent fixed rate in the United States for dollars, whereas it can borrow euros at 6 percent. The exchange rate has been forecast to be $1.33/1.00 over the duration of the swaps. Calculate the Quality Spread Differential (QSD). Set up a currency swap (involving a swap bank) that will benefit each counterparty. The total benefits from the swap are divided according to the allocation ratio of the Centralia Corporation: the Spanish MNC: Swap Bank = 2:2:1. Note that a currency swap can be viewed as a combination of two interest rate swaps. What is the effective borrowing cost faced by of the Centralia Corporation after entering into the swap contract? What is the effective borrowing cost faced by the Spanish MNC after entering into the swap contract? What are the swap bank's ask price and bid price on the eight-year interest rate swap against LIBOR? What are the swap bank's ask price and bid price on the eight-year $ interest rate swap against LIBOR