A us company has a liability of euro10 million in fixed


A U.S. company has a liability of €10 million in fixed rate bonds outstanding at 6%. A Germany company has a $15 million FRN outstanding at LIBOR. The exchange rate is $1.5/€. The US Company enters into a plain vanilla currency swap with the swap dealer in which it pays LIBOR on $15 million and receives the swap rate of 6.0% on € 10 million. The Germany also enters into a plain vanilla currency swap with the same dealer, in which it pays a swap rate of 6.1% on € 10 million and receives LIBOR on $15 million. One year LIBOR is currently 5.2%. Calculate each party’s net borrowing cost, the principal cash flows at the initiation and maturity of the contract, and the first year cash flows (assume annual settlement).

Request for Solution File

Ask an Expert for Answer!!
Financial Accounting: A us company has a liability of euro10 million in fixed
Reference No:- TGS01666818

Expected delivery within 24 Hours