Consider fixed for fixed currency swap. The Dow corporation is a U.S.-based mult

Question

Consider fixed for fixed currency swap. The Dow corporation is a U.S.-based multinational. The Jones corporation is a U.K.-based multinational. Dow wants to finance a £2 million expansion in Great Britain. Jones wants to finance a $4 million expansion in the U.S. The spot exchange rate is £1.00 = $1.75. Dow can borrow dollars at $10% and pounds sterling at 12%. Jones can borrow dollars at 9% and pounds sterling at 10%. Which of the following swaps is mutually beneficial to each party and meets their financing needs? Neither party should face exchange rate risk.

Explanation / Answer

Solution.

In this case there are no mutually benificial swap that has nither party faceing exchange rate risk.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.