Consider the Situation of Firm a and Firm B $$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$

question 59

Essay

Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
$$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$ Act as a swap bank and quote bid and ask prices to A and B that are attractive to A and B and promise to make at least 20bp for your firm.
                  USD                                          EURO            
          bid                 ask                          bid                 ask

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Definitions:

Jericho

One of the oldest inhabited cities in the world, located in the West Bank, notable for its ancient archaeological sites.

Çatal Höyük

An archaeological site in modern Turkey, known as one of the earliest urban centers in the world, dating back to the Neolithic era, notable for its unique layout and murals.

Neolithic Murals

Wall paintings from the Neolithic period, found in various archaeological sites, which depict scenes from everyday life, animals, and human figures.

Warfare

The engagement in or activities involved in war or conflict, including strategies, tactics, and operations conducted by armed forces.