A US Firm Is Earning British Pounds from Its Foreign Subsidiary

question 62

Essay

A U.S. firm is earning British pounds from its foreign subsidiary. A U.K. firm is earning dollars from its U.S. subsidiary. Neither firm can borrow at a cost-effective rate outside of its home country/currency. What kind of swap could be used to limit the FX risk of both firms and explain the payment flows involved (be specific)?

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