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The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit.   The following data is available: Interest SGD Interest USD SGD company 8.50% 5.75% USD company 7.75% 5.50%   Determine whether a beneficial currency swap between the two companies is possible

The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit.   The following data is available: Interest SGD Interest USD SGD company 8.50% 5.75% USD company 7.75% 5.50%   Determine whether a beneficial currency swap between the two companies is possible

Essentials Of Investments
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
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The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit.

 

The following data is available:

Interest SGD Interest USD

SGD company 8.50% 5.75%

USD company 7.75% 5.50%

 

Determine whether a beneficial currency swap between the two companies is possible..

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