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Compute the total cost for both parties

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Question - Fortune Ltd is a US based multinational corporation has its subsidiary in India and David Brothers Ltd is a New Delhi based company has its subsidiary in New York. Both companies have a requirement to raise funds for their subsidiaries for working capital needs. Fortune Ltd requires INR 50 million whereas David Brothers Ltd requires USD 75 million at the current spot rate of INR 72.93/USD. Fortune Ltd can issue three year Bonds in US capital market at 12% fixed rate and three year bonds in the India at LIBOR + 0.1%, i.e., floating rate. David Brothers Ltd can issue three year US bonds in US market at 13.40% fixed rate and INR Bonds in India at LIBOR + 0.6%, i.e., floating rate. Fortune Ltd is almost preferring to go with borrowing in India and David Brothers is about to finalize a proposal to issue bonds in US.

a. Is there a swap that both companies can get into and benefit?

b. Compute the total cost for both parties if the swap is equally attractive to both the parties?

Reference no: EM133046555

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