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Given the following:
US Dollars Swiss Francs
Firm LMN 11 pct. 7 pct.
Firm XYZ 7 pct. 6 pct.
The above borrowing rates represent the borrowing rates the firms can obtain for a five year fixed rate debt issue in U.S. dollars or Swiss francs. Suppose XYZ wishes to borrow Swiss francs and LMN wishes to borrow U.S. dollars. LMN demands a 11 pct cost of borrowing . First step is for XYZ to borrow $1000 at its 7 percent rate. Using a swap demonstrate, explain how the borrowing costs of each company could be reduced. Assume the spot exchange rate of 2 Swiss francs per dollar.
Myoptic Optical is a levered no-growth firm with $1, 400, 000 debt outstanding. Firm value is $2, 277, 500. The firm's owner is currently contemplating whether to reduce its debt ratio to a more reasonable 40%. What will be Myoptic Optical's new cost..
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The exchange rate between the US dollar and the Swiss Franc is SF1.3=$1, and the exchange rate betweent he dollar and the British pound is BP1=$1.40. What is the cross rate between francs and pounds.
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