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?

• A)(*1.26 million)
• B)(*5.71 million)
• C)(*52.50 million)
• D)(*63.00 million )

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Definitions:

Relevant Activities

Activities of the investee that significantly affect the investee’s returns.

Investee's Returns

Refers to the earnings gained from the investment in another entity, including dividends and value appreciation.

Single Economic Entity

A concept where a parent company and its subsidiaries are presented as one reporting entity in consolidated financial statements, ignoring the legal boundary that separates them.

AASB 10/IFRS 10

An Australian/international financial reporting standard that establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.