Company X Wants to Borrow $10,000,000 Floating for 5 Years;

question 13

Multiple Choice

Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow £5,000,000 fixed for 5 years.The exchange rate is $2 = £1 and is not expected to change over the next 5 years.Their external borrowing opportunities are: A swap bank wants to design a profitable interest-only fixed-for-fixed currency swap.In order for X and Y to be interested,they can face no exchange rate risk What must the values of A and B in the graph shown above be in order for the swap to be of interest to firms X and Y?

• A)A = $10.50%; B = £12%.
• B)A = $10%; B = £13%.
• C)A = $12%; B = £13%.
• D)A = £10.50%; B = $12%.

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Definitions:

Society's Shortcomings

Flaws or failures within a society that hinder the well-being, justice, or progress of its members.

Natural Law

A belief system that claims specific rights or values are intrinsic to human nature and universally recognizable through the use of human intellect.

Relative Ethics

The belief that moral standards are influenced by and can only be understood in relation to the specific social, cultural, or individual context.

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