Axil CorpHas Not Tapped the Deutsche Mark Public Debt Market Because

question 14

Multiple Choice

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%.
-What is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

• A)1%
• B)75%
• C)2%
• D)1.25%

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Definitions:

Central Banks

National banks that provide financial and banking services for their country's government and commercial banking system, and implement monetary policy.

Bretton Woods System

A monetary management system that established the rules for commercial and financial relations among the major industrial states after World War II.

Gold Value

Refers to the market worth of gold, which fluctuates based on economic conditions, supply, and demand.

Exchange Value

The worth of a good or service as determined by the market, or the amount of goods and services that can be exchanged for it.