An english company with a subsidiary in the united states


An English company with a subsidiary in the United States is seeking alternatives for funding of USD 20 MM to three years for its subsidiary.

The first possibility is paid GBP in England with a AAA risk, convert GBP USD to provide resources to its subsidiary.

The second is the subsidiary obtains funding directly in the United States, the problem is that the subsidiary has a BBB credit risk and pay a higher rate on the loan in GBP in England.

In the first possibility subsidiary would have to generate flows for the loan, the problem is that would be generated in USD and should be changed to GBP to cover the interest and the loan would generate exposure to exchange rate risk

Question

In the second alternative is no risk of exchange rate but most serious?

For the moment I am not happy with any of the possibilities presented?

The investment bank has a new alternative using a swap.?

The Bank has a AAA North American client seeking cover exchange risk with some operations in England, they have a maturity of 3 ?
years.

England rate risk AAA 10%

AAA North America 9% rate risk

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Accounting Basics: An english company with a subsidiary in the united states
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