Us firm x can borrow dollars at libor1 floating rate or 13

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1. US firm X wants yens. It can borrow yens at 5% and can borrow dollars at 10%. Japanese firm Y wants dollars. It can borrow dollars at 12% and can borrow yens at 6%. You are the swap bank. Construct a currency swap that benefits both firms. Explain the borrowing costs of the two firms before and after the swap. Ignore transaction costs

2. US firm X can borrow dollars at Libor+1 (floating rate) or 13% (fixed rate). US firm X wants fixed rates. US firm Y can borrow dollars at Libor (floating rate) or 10% (fixed rate). US firm Y wants floating rates. You are the swap bank. Construct an interest rate swap that benefits both firms. Explain the borrowing costs of the two firms before and after the swap. Ignore transaction costs.

Reference no: EM13619986

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