Solved

Consider the Situation of Firm a and Firm B $\begin{array} { c | c c } & \$ & £ \\\hline \mathrm { A } & \$ 6 \% & £ 5 \% \\\mathrm {~B} & \$ 7 \% & £ 4 \%\end{array}$

question 44

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. $\begin{array} { c | c c } & \$ & £ \\\hline \mathrm { A } & \$ 6 \% & £ 5 \% \\\mathrm {~B} & \$ 7 \% & £ 4 \%\end{array}$ The IRP 1-year and 2-year forward exchange rates are $\begin{array} { l } F _ { 1 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) } { £ 1.00 \times ( 1.04 ) } = \frac { \$ 2.0385 } { £ 1.00 } \\F _ { 2 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) ^ { 2 } } { £ 1.00 \times ( 1.04 ) ^ { 2 } } = \frac { \$ 2.0777 } { £ 1.00 }\end{array}$ $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 $60 million for 2 years. Their borrowing opportunities are as shown, both firms have AAA credit ratings. \begin{array} { c | c c } & \$ & £ \\ \hline \mathrm { A } & \$ 6 \% & £ 5 \% \\ \mathrm {~B} & \$ 7 \% & £ 4 \% \end{array} The IRP 1-year and 2-year forward exchange rates are \begin{array} { l } F _ { 1 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) } { £ 1.00 \times ( 1.04 ) } = \frac { \$ 2.0385 } { £ 1.00 } \\ F _ { 2 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) ^ { 2 } } { £ 1.00 \times ( 1.04 ) ^ { 2 } } = \frac { \$ 2.0777 } { £ 1.00 } \end{array} -Devise a direct swap for A and B that has no swap bank.Show their external borrowing.Answer the problem in the template provided.$
-Devise a direct swap for A and B that has no swap bank.Show their external borrowing.Answer the problem in the template provided. $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 $60 million for 2 years. Their borrowing opportunities are as shown, both firms have AAA credit ratings. \begin{array} { c | c c } & \$ & £ \\ \hline \mathrm { A } & \$ 6 \% & £ 5 \% \\ \mathrm {~B} & \$ 7 \% & £ 4 \% \end{array} The IRP 1-year and 2-year forward exchange rates are \begin{array} { l } F _ { 1 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) } { £ 1.00 \times ( 1.04 ) } = \frac { \$ 2.0385 } { £ 1.00 } \\ F _ { 2 } ( \$ \mid £ ) = \frac { \$ 2.00 \times ( 1.06 ) ^ { 2 } } { £ 1.00 \times ( 1.04 ) ^ { 2 } } = \frac { \$ 2.0777 } { £ 1.00 } \end{array} -Devise a direct swap for A and B that has no swap bank.Show their external borrowing.Answer the problem in the template provided.$

Consider the Situation of Firm a and Firm B $£A$6%£5% B$7%£4%\begin{array} { c | c c } & \$ & £ \\\hline \mathrm { A } & \$ 6 \% & £ 5 \% \\\mathrm {~B} & \$ 7 \% & £ 4 \%\end{array}A B​$$6%$7%​££5%£4%​​

Definitions:

Consider the Situation of Firm a and Firm B $\begin{array} { c | c c } & \$ & £ \\\hline \mathrm { A } & \$ 6 \% & £ 5 \% \\\mathrm {~B} & \$ 7 \% & £ 4 \%\end{array}$