Ensure all foreign exchange risk is assumed by the bank

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Company X wishes to borrow US dollars at a fixed rate of interest. Company Y wishes to borrow Japanese yen at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates: Yen Dollars Company X 4.8 9.6 Company Y 7.2 10.0 Design a swap that will net a bank, acting as an intermediary, 0.5% per annum. Make the swap equally attractive to both sides and ensure all foreign exchange risk is assumed by the bank. After the swap you designed, at what rate of interest in US dollars does Company X borrow?

Reference no: EM131990106

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