Business, 30.03.2020 20:45 sandaepoe001

There are two companies, A (US) and B (Germany). Company A is looking to hedge some of its Euro exposure by borrowing Euros. And company B is seeking dollars to finance some projects in the US. Both companies want the equivalent of 100$ millions. In order to improve their borrowing conditions they decide to borrow in their own currencies and then swap the debt-service obligations. Current spot rate of $1.4/€, and both companies want to borrow at fixed rate. Assume next figures: - Company A is paying 6 million $/year of interest rate. - Company A can issue euro-denominated debt at 7.5%. - Company B is paying 4.71 Million €/year of interest rate. - Company B can issue dollar-denominated debt at 7.3%. a) Which is the net profit of SWAP for each company?

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There are two companies, A (US) and B (Germany). Company A is looking to hedge some of its Euro expo...

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