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 B $ $60 $7 5 4% The IRP 1-year and 2-year forward exchange rates are $2.00 (1.06) _ $2.0385 F($)= 1.00 x (1.04) 1.00 $2.00 (1.06)_$2.0777 F ($)= 1.00 x (1.04) 1.00 Bid 69 USD Ask 6.10 pounds Bid Ask 4 4.1% Explain how firm A could use the forward exchange markets to redenominate a 2-year $60m 6% USD loan into a 2-year 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 B $ $60 $7 5 4% The IRP 1-year and 2-year forward exchange rates are $2.00 (1.06) _ $2.0385 F($)= 1.00 x (1.04) 1.00 $2.00 (1.06)_$2.0777 F ($)= 1.00 x (1.04) 1.00 Bid 69 USD Ask 6.10 pounds Bid Ask 4 4.1% Explain how firm A could use the forward exchange markets to redenominate a 2-year $60m 6% USD loan into a 2-year pound denominated loan