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

question 16

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: $$\begin{array} { c c c } & \begin{array} { c } \$ \\\text { Borrowing } \\\text { Cost }\end{array} & \begin{array} { c } £ \text { Borrowing } \\\text { Cost }\end{array} \\\hline \text { Company X } & \$ 10 \% & £ 10.5 \% \\\text { Company Y } & \$ 12 \% & £ 13 \%\end{array}$$ 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:

Schizophrenia

A psychiatric disorder marked by significant disturbances in thought, perception, emotions, and behavior, often manifesting as hallucinations, delusions, and disorganized speech.

Disorganized Speech

A symptom often associated with schizophrenia, marked by incoherent and nonsensical talk, making it hard for the individual to communicate effectively.

Negative Symptoms

In the context of psychiatric conditions, features such as apathy, lack of emotion, poor or nonexistent social functioning.

Hallucinations

Perceptual disturbances that are experienced without an external source.