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16 Mar 2023
Company A, wishes to borrow U.S dollars at a fixed rate of interest. Company B, 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:
Company X- Yen 4.8%
Company Y-Yen 6.2%
Company X-Dollars 9.5%
Company Y-Dollars 10.0%
Design a swap that will net a bank, acting as intermediary, 20 basis points per annum. Make a swap appear equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the company X and Company Y. Also draw the cash flow chart.
Company A, wishes to borrow U.S dollars at a fixed rate of interest. Company B, 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:
Company X- Yen 4.8%
Company Y-Yen 6.2%
Company X-Dollars 9.5%
Company Y-Dollars 10.0%
Design a swap that will net a bank, acting as intermediary, 20 basis points per annum. Make a swap appear equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the company X and Company Y. Also draw the cash flow chart.
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