The following information is regarding annual borrowing rates of the Ikea and Costco companies for Euro and USD. The Ikea company needs euros while the Costco needs USD
Ikea- EUR 3.42%- USD 1.02%
Costco- EUR 4.15% USD 2.48%
a. How much in which curreney is the comparative advantage for the Costco company?
b. What is the quality spread differential in this swap?
c. If the Costco obtains 40% of the swap benefit and the rest goes to the Ikea company, what are the interest costs for each company if there is no financial intermediary in this swap transaction?
d. If the Costco obtains 40% of the swap benefit and the rest goes to the Ikea company, what are the interest costs for each company if a financial intermediary charge is 10% of the swap benefit in this swap transaction?
