The Following Statement Is to Be Used in Answering Questions

question 19

Multiple Choice

The following statement is to be used in answering questions
Axil Corp. has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating rate dollar borrower, which it can be at LIBOR + 1%. Bevel Corp. strongly prefers fixed rate DM debt, but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry. Bevel, however, can obtain Eurodollars at LIBOR + ½%.
-is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

• A) 1%
• B) 75%
• C) 2%
• D) 1.25%

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Definitions:

Capital Balances

Refers to the amount of money that the owners of a company have invested in it.

Goodwill Method

An accounting method used to determine the value of a non-tangible asset acquired when one company buys another.

Profits and Losses

Financial terms representing the positive or negative financial outcomes resulting from a company's operations and activities.

LLP

Limited Liability Partnership, a partnership where some or all partners have limited liabilities, protecting individual partners from the debts of the partnership.