Amazon would like to get a floating rate loan $10,000,000. It can borrow at 7.92% or Libor + 1%. A swap bank quotes 7.55 - 7.64 against flat Libor. How much can Amazon save (in basis points) by entering a swap agreement? A put option with a strike of $1.22/£ has a premium of $0.690. The current spot exchange rate is $1.476/£. What is the option's time value?

Amazon would like to get a floating rate loan $10,000,000. It can borrow at 7.92% or Libor + 1%. A swap bank quotes 7.55 - 7.64 against flat Libor. How much can Amazon save (in basis points) by entering a swap agreement? A put option with a strike of $1.22/£ has a premium of $0.690. The current spot exchange rate is $1.476/£. What is the option's time value?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 6ST

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