Interest rate swaps with no rate adjustments

Reference no: EM1315831

Interest rate swaps with no rate adjustments.

Dell Inc. wants to borrow pounds, and Virgin Airlines wants to borrow dollars. Because Dell is better known in the U.S., it can borrow on its own dollars at 7% and pounds at 9%, whereas Virgin can borrow dollars at 8% and pounds at 8.5%.

Suppose Dell wants to borrow £10 million for two years, Virgin wants to borrow $16 million for two years, and the current ($/£) exchange rate is $1.60. What swap transaction would accomplish this objective? Assume the counterparties would exchange principal and interest payments with no rate adjustments.

Reference no: EM1315831

Questions Cloud

Find the cycle service level : Find the cycle service level that the store achieves with this policy and What is the fill rate that the store achieves with this policy?

What are the cost savings to each party : whereas Virgin can borrow dollars at 8% and pounds at 8.5% and What range of interest rates would make this swap attractive to both parties and what are the cost savings to each party?

Interest rate swaps on the borrowings : Computation of savings with Interest rate swaps on the borrowings - What range of interest rates would make this swap attractive to both parties?

Use mathematical induction to solve the equation : Use mathematical induction to solve the equation.

Interest rate swaps with no rate adjustments : Interest rate swaps with no rate adjustments - What swap transaction would accomplish this objective?

Evaluation of foreign currency : Computation of Foreign Currency - Hedging with forward contracts and find the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure?

Interest rate and currency swap : Explain one risk World would assume by entering into the combined interest rate and currency swap and Currency Swaps, Interest rate swaps with alternative debt issues

Find the derivative of the function : Find the derivative of the function.

Income statement preparation by absorption : Income statement preparation by Absorption, Variable Costing and Updike Inc. has the following information for its product

User Account

All Pages