How many bp will the swap bank earn

Assignment Help Financial Management

Reference no: EM131072084

A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow €1,000,000 for one year and B wants to borrow $2,000,000 for one year. The spot exchange rate is $2.00 = €1.00, a swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR:

USD Euro

Bid: 8% Bid: 6%

Ask: 8.1% Ask 6.1%

The firms external borrowing opportunities are:

Euro borrowing | USD Borrowing

a. 7% (euro) 8%(usd)

b. 6% (euro) 9%(usd)

How many basis points (bp) can firms A and B each save by venturing info currency swaps?

How many bp will the swap bank earn?

PLEASE SHOW ALL WORK INVOLVED IN PROBLEM!

Reference no: EM131072084

Questions Cloud

What are annual after-tax cash flows associated with project : The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of $35,000 per year, it has a purchase price of $100,000..

Discuss the differences in short- term and long-term markets : Identify the relevant factors that affect interest rate movements through an analysis of Treasury's decision and provide examples. Explain the effect of the Treasury's decision on the term structure if short-term and long-term markets are segmented a..

New shares of stock will be issued to complete acquisition : Goodday and sons is being acquired by baker inc. for $18,000 worth of baker stock. baker has 1200 share of stock outstanding at a price of $20 a share. Goodday has 1000 shares outstanding with a market value of $16 a share. the incremental value of t..

Compute the company residual income for the year : Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $430,000 on sales of $1,100,000. Compute the company’s residual income for..

How many bp will the swap bank earn : A is a U.S.-based MNC with AAA credit; B is an Italian firm with AAA credit. Firm A wants to borrow €1,000,000 for one year and B wants to borrow $2,000,000 for one year. How many basis points (bp) can firms A and B each save by venturing info curren..

European put option on non-dividend-paying stock : Consider a 3-month European put option on a non-dividend-paying stock, where the stock price is $70, the strike price is $70, the risk-free rate is 3% per annum. Stock price will either move up by 10% or down by 5%, every month. Price the put with bi..

What is the present value of costs of each alternative : Present Value of Costs The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. What is the present value of costs of each alternative?

Create portfolio with an expected return : You have $10,000 to invest in a stock portfolio. Your choices are stock X with an expected return of 13 percent and stock Y with an expected return of 8 percent. Your goal is to create a portfolio with an expected return of 12.4 percent. All money mu..

What is the portfolios expected return : A portfolio is invested 15 percent in Stock G, 60 percent in Stock J, and 25 percent in Stock K. The expected returns on these stocks are 9 percent, 15 percent, and 29 percent, respectively. What is the portfolio's expected return?

User Account

All Pages