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The last part that is cut off says pound denominated loan Consider the situation of firm A and firm B. The current exchange rate is
The last part that is cut off says pound denominated loan
Consider the situation of firm A and firm B. The current exchange rate is $2.00/ Firm A is a U.S. MNC and wants to borrow 30 million for 2 years. Firm B is a British MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown, both firms have AAA credit ratings. A $ $6% $ 7% 5% 4% B The IRP 1-year and 2-year forward exchange rates are F ( 5 ) $2.00 X (1.06) 1.00 x (1.04) $2.0385 +1.00 F2 ( $ ) $2.00 (1.06) 1.00 (1.04) $2.0777 1.00 USD Bid Ask 6% 6.1% pounds Bid Ask 4% 4.1% Explain how firm A could use the forward exchange markets to redenominate a 2-year $60m 6 percent USD loan into a 2-year neund denominated loanStep by Step Solution
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