7.13. Company X wishes to borrow U.S. 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, which have been adjusted for the impact of taxes: Company X Company Y Yen 5.0% 6.5% Dollars 9.6% 10.0% Design a swap that will net a bank, acting as intermediary, 50 basis points per annum. Make the swap equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the bank.
7.13. Company X wishes to borrow U.S. 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, which have been adjusted for the impact of taxes: Company X Company Y Yen 5.0% 6.5% Dollars 9.6% 10.0% Design a swap that will net a bank, acting as intermediary, 50 basis points per annum. Make the swap equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the bank.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:7.13. Company X wishes to borrow U.S. 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, which have been adjusted for the
impact of taxes:
Company X
Company Y
Yen
5.0%
6.5%
Dollars
9.6%
10.0%
Design a swap that will net a bank, acting as intermediary, 50 basis points per annum. Make the swap equally
attractive to the two companies and ensure that all foreign exchange risk is assumed by the bank.
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