A US-Based Corporation Wants to Raise Fixed-Rate Dollar Financing

question 16

Multiple Choice

A US-based corporation wants to raise fixed-rate dollar financing. It finds it can borrow fixed in USD at 6% per annum. It can also borrow fixed in JPY at 2% per annum. It can enter into a USD-JPY currency swap in which 2% fixed JPY interest rates are exchanged for USD Libor. Lastly, the company can enter into a USD plain vanilla fixed-vs-Libor interest rate swap with a fixed rate of 5.75%. Given this information, the company's best option is to

• A) Raise USD fixed rate financing directly.
• B) Raise USD floating rate financing at Libor plus 25 basis points and swap into fixed.
• C) Raise fixed-rate JPY financing and leave it unhedged (i.e., do not enter into any swaps).
• D) Raise JPY fixed rate financing, swap into USD fixed using a currency swap and an interest-rate swap.

---

Definitions:

Paper Check Processing

The procedure involved in the exchange and clearance of checks between banks through physical or electronic means.

Perceived Market Share

An estimate of the percentage of the total market volume or value that is captured by a company or product, based on the perception of customers or market analysts.

Actual Market Share

The real percentage of an industry or market's total sales that is earned by a particular company over a specified time period.

Demand Curve

A visual diagram that illustrates the connection between the cost of a product or service and the amount consumers want to buy at different price levels.