Company X wishes to borrow US dollars at a fixed rate of interest.
Compariy 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 are subject to the following
interest rates, which have been adjusted to reflect the impact of taxes:
Yen Dollars Company X 5.0% 9.6% Company Y 6.5% 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.
Compariy 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 are subject to the following
interest rates, which have been adjusted to reflect the impact of taxes:
Yen Dollars Company X 5.0% 9.6% Company Y 6.5% 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.
