Question
There is an American Multinational Corporation would like to do a project in the United Kingdom that cost them 82.44 million. Also, there is a
There is an American Multinational Corporation would like to do a project in the United Kingdom that cost them 82.44 million. Also, there is a British Multinational Corporation would like to do a project in United States of America that cost them $100 million; Exchange rate is $1.21 per each . Both corporations are unknown outside their boarders, so they will borrow at higher interest rate as shown on the below table. Both corporations will be able to finance their projects oversees at lower costs using currency swap to avoid exchange rate risk and higher interest rate. Explain how would this swap work and show how both corporations are better off using the swap? Ignore the cost of the project and focus on the interest rate Interest rate in USA $ Interest rate in UK American Corporation 5% 3% British Corporation 8% 2%
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