Come Up with a Swap (Exchange of Interest and Principal)for $\begin{array}{lll} & € & \$ \\\mathrm{~A} & € 5 \% & \$ LIBOR \% \\\mathrm{~B} & € 6 \% & \$ \mathrm{LBOR}+1 / 2 \%\end{array}$

question 43

Essay

Come up with a swap (exchange of interest and principal)for parties A and B who have the following borrowing opportunities.
$\begin{array}{lll} & € & \$ \\\mathrm{~A} & € 5 \% & \$ LIBOR \% \\\mathrm{~B} & € 6 \% & \$ \mathrm{LBOR}+1 / 2 \%\end{array}$ The current exchange rate is $1.60 = €1.00.Company "A" is in Milan,Italy and wishes to borrow $1,000,000 at a floating rate for 5 years and company "B" is a U.S.firm that wants to borrow €625,000 for 5 years at a fixed rate of interest.You are a swap dealer.Quote A and B a swap that makes money for all parties and eliminates exchange rate risk for both A and B.

---

Definitions:

T-test

An analysis technique employed to assess whether there is a significant difference between the average values of two distinct groups.

Participants

Individuals who take part in a study or experiment, providing data or responses for analysis.

Independent Means

Statistical measures or values that are not influenced by other variables in a study.

Alternative Hypothesis

A statement that contradicts the null hypothesis, suggesting there is a significant difference or effect.