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 €1.00, a swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR. borrow $2,000,000 for one year. The spot exchange rate is $2.00 = USD Bid Ask 88 8.1% Euro Bid Ask 68 6.18 The firms external borrowing opportunities are A € borrowing $ borrowing € 79 $ 88 € 68 $ 98 B Is there a mutually beneficial swap? Multiple Choice Yes, Firm A swaps with the swap bank, $ at bid and € atask. Firm 8 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. O O There is no mutually beneficial swap at these prices, Yes, Firm A swaps with the swap bank, $ at ask and € at bid. Firm 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. none of the options
