Consider the Situation of Firm a and Firm B $$\begin{array} { l l l } & \$ & £ \\\text { A } & \$ 6 \% & £5 \% \\B & \$7 \% & £ 4\%\end{array}$$

question 29

Essay

Consider the situation of firm A and firm B.The current exchange rate is $2.00/£ Firm A is a U.S.MNC and wants to borrow £30 million for 2 years.Firm B is a British MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown,both firms have AAA credit ratings.
$$\begin{array} { l l l } & \$ & £ \\\text { A } & \$ 6 \% & £5 \% \\B & \$7 \% & £ 4\%\end{array}$$ Explain how firm B could use the forward exchange markets to redenominate a 2-year £30m 4 percent pound sterling loan into a 2-year USD-denominated loan.

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Definitions:

Aggressiveness

A behavior characterized by assertiveness and readiness to confront, often manifested in a forceful or proactive approach.

Motor Neurons

Nerve cells responsible for transmitting signals from the brain and spinal cord to muscles, regulating their movement.

Schwann Cells

A type of glial cell that wraps around nerve fibers in the peripheral nervous system, forming the myelin sheath that aids in the fast conduction of electrical signals.

Afferent Neurons

Nerve cells that carry sensory information from the body's organs and tissues toward the central nervous system.