BB can borrow in the United States for 9%, while AA has to pay 10% to borrow in the United States. AA can borrow in Australia for 7%, while BB has to pay 8% to borrow in Australia. BB will be doing business in Australia and needs AUD, while M will be doing business in the United States and needs USD. The exchange rate is 2AUD/USD. AA needs USD1.0 million and BB needs AUD2.0 million. They decide to borrow the funds locally and swap the borrowed funds. The swap period is for five yean. Calculate the cash flows for this swap.

BB can borrow in the United States for 9%, while AA has to pay 10% to borrow in the United States. AA can borrow in Australia for 7%, while BB has to pay 8% to borrow in Australia. BB will be doing business in Australia and needs AUD, while M will be doing business in the United States and needs USD. The exchange rate is 2AUD/USD. AA needs USD1.0 million and BB needs AUD2.0 million. They decide to borrow the funds locally and swap the borrowed funds. The swap period is for five yean. Calculate the cash flows for this swap.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 3BIC

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