A is a us-based mnc with aaa credit b is an italian firm, Ask an Expert

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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 to borrow $2,000,000 for one year. The spot exchange rate is $2.00 = €1.00, a swap bank makes the following quotes for 1-year swaps and AAA-rated firms against USD LIBOR: USD Euro Bid: 8% Bid: 6% Ask: 8.1% Ask 6.1% The firms external borrowing opportunities are: Euro borrowing | USD Borrowing a. 7% (euro) 8%(usd) b. 6% (euro) 9%(usd) 1) How many basis points (bp) can firms A and B each save by entering into currency swaps? 2) How many bp will the swap bank earn? Please show work.

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Financial Management, Finance

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