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

question 38

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.
$$\begin{array} { l l l } & \$ & £ \\\text { A } & \$ 6 \% & £5 \% \\B & \$7 \% & £ 4\%\end{array}$$ Show how your proposed swap would work for firm A.(e.g.,if you were acting as an agent for the swap bank,try to "sell" firm A on your swap)

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Definitions:

Outside Supplier

A third-party entity that provides goods or services to a company, typically not affiliated with the company's internal supply chain.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the level of production or output volume.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor directly involved in manufacturing.

Annual Wheel Needs

The total requirement for wheels within a one-year period, usually in the context of manufacturing or automotive maintenance.