A British Firm and a U

question 38

Multiple Choice

A British firm and a U.S. Corporation each wish to enter into a currency swap hedging agreement. The British firm is receiving U.S. dollars from sales in the U.S. but wants pounds. The U.S. firm is receiving pounds from sales in Britain but wants dollars. Which of the following choices would best satisfy the desires of the firms?

• A) The British firm pays dollars to a swap dealer and receives pounds from the dealer. The U.S. firm pays pounds to the swap dealer and receives dollars.
• B) The U.S. firm pays dollars to a swap dealer and receives pounds from the dealer. The British firm pays pounds to the swap dealer and receives dollars.
• C) The British firm pays pounds to a swap dealer and receives pounds from the dealer. The U.S. firm pays dollars to the swap dealer and receives dollars.
• D) The British firm pays dollars to a swap dealer and receives dollars from the dealer. The U.S. firm pays pounds to the swap dealer and receives pounds.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the percentage of tax applied to your income for each tax bracket in which you qualify.

Refunding

The process of replacing an old debt with a new one, often with terms that are more favorable to the debtor, such as lower interest rates or extended maturity dates.

Bought Deal

A financing arrangement where an investment bank buys an entire new issue of securities from a company and resells it to investors.

Underwriter

A person or organization that evaluates and assumes the risk of another entity, often involved in issuing new securities as part of public offerings.