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The table below presents the costs of borrowing for Microsoft and Nike in Euros and Pounds, and the quotes for interest swaps in Euros and
The table below presents the costs of borrowing for Microsoft and Nike in Euros and Pounds, and the quotes for interest swaps in Euros and Pounds, both quoted against LIBOR. Microsoft would like to get a fixed-rate Pound loan. Nike would like to get a fixed-rate Euro loan. How much can Microsoft save by entering a currency swap agreement?
Borrowing Cost in Euro | Borrowing Cost in Pound | ||
Microsoft | 3.00% | 8.10% | |
Nike | 3.55% | 7.00% | |
Swap Bank Quote | |||
Euro | Pound | ||
Bid | Ask | Bid | Ask |
3.00% | 3.47% | 7.00% | 7.18% |
A.92 bps
B.110 bps
C.55 bps
D.8 bps
E.None of the alternatives
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