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ABC CorpEntered into a Currency Swap with Its Bank, Providing That

question 8

Multiple Choice

ABC Corp.entered into a currency swap with its bank, providing that ABC borrows $5 million at 10 percent and swaps for a 12 percent yen loan.The spot exchange rate is *105$.If interest only is to be repaid on an annual basis, how much does ABC pay annually to the bank?

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Definitions:

Normal Profit

The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income that entrepreneurial ability must receive to induce entrepreneurs to provide their entrepreneurial ability to a firm; the level of accounting profit at which a firm generates an economic profit of zero after paying for entrepreneurial ability.

Implicit Cost

The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.

Law of Diminishing Returns

The economic principle stating that as one input variable is increased, there is a point at which the marginal gain in output begins to decrease, holding all other inputs constant.

Diseconomies of Scale

Diseconomies of scale occur when a firm's costs per unit increase as the scale of its output increases, often due to inefficiencies that arise from managing a larger organization.