The current spot exchange rate is $2/1. A U.S. company wants to fund a 5 million U.K. investment with one-year euro commercial paper. A U.K. company wants to fund a $10 million U.S. investment with one-year U.S. dollar commercial paper. These companies respective borrowing costs are summarized in the following table. What must be the values of A and B in the diagram for the U.S. and U.K. companies to be interested in a currency swap? Assume for simplicity that there is no bid-ask spread (that is, the swap bank does not earn a profit) and that the forward rate is $2.019/1.

U.S COMPANY - BORROWING COST(USD) = 8%

U.S COMPANY - BORROWING COST(U.K) = 9%

U.K COMPANY - BORROWING COST(USD) = 10%

UK COMPANY - BORROWING COST(UK) = 7%

Multiple chpice

A = $8%; B = 7%.

A = 7%; B = $8%.

A = $8%; B = 9%.

A = 9%; B = $10%.