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 Ask Bid Ask 8%  8.1% 6%   6.1%  The firms external borrowing opportunities are € borrowing       $ borrowingA€7% $8%B€6% $9%Group of answer choicesThere is no mutually beneficial swap at these prices.Firm A does 2 swaps with the swap bank, $ at ask and € at bid. Firm B does 2 swaps with the swap bank, $ at bid and € at ask. Firms A and B would each save 90bp and the swap bank would earn 20bp.Firm A does 2 swaps with the swap bank, $ at bid and € at ask. Firm B does 2 swaps with the swap bank, $ at ask and € at bid. Firms A and B would each save 90bp and the swap bank would earn 20bp.none of the options

Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here:   Fixed-RateBorrowing CostFloating-RateBorrowing CostCompany X10%LIBORCompany Y12%LIBOR + 1.5% A swap bank proposes the following interest only swap:X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90 percent. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR − 0.15 percent. What is the value of this swap to the swap bank?Group of answer choicesThe swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year.none of the optionsThe swap bank will break even.The swap bank will lose money on the deal.

You are a price maker. Your 6-month EUR/USD swap rate is 25/26. At what rate would a corporate customer buy and sell USD spot versus 6 months?

Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, that the spot exchange rate is $1.60/€ and that the forward exchange rate, with one-year maturity, is $1.50/€. Assume that an arbitrager can borrow up to $1,000,000 or €625,000. If an astute trader finds an arbitrage, what is the net cash flow in one year?

ABC Ltd can borrow from the market at a fixed rate for 5 years of 5% or floating rate at LIBOR + 0.1%. XYZ Ltd can borrow fixed for 5 years at 7% or floating rate at LIBOR+0.5%. Both companies decide to borrow from the market using their comparative pricing advantages and swap interest payments with each other. In the swap contract, XYZ agrees to pay ABC fixed at 5.5% and ABC agrees to pay LIBOR to XYZ. What is the net effective borrowing cost for XYZ after the swap? hint - draw a diagram to see the interest rates flowing to XYZ. Select one: a. 6% b. LIBOR-0.5% c. 5.5% d. LIBOR

The foreign exchange quotation, EUR/AUD1.4112–20, means that a bank is willing to payGroup of answer choicesAUD1.4120 for one euro and to sell a euro for AUD1.4112.EUR1.4112 for one AUD and to sell one AUD for EUR1.4120.EUR1.4120 for one AUD and to sell one AUD for EUR1.4112.AUD1.4112 for one euro and to sell a euro for AUD1.4120.