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Calculating the fixed rate of interest

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    Assignment ID: FG133057656

    American X wishes to borrow U.S. dollars at a fixed rate of interest. Corporation Y wishes to borrow Japanese Yen at a fixed rate of interest. The amounts required by the two companies are the same at the current exchange rates. The following interest rates are listed adjusted for taxes:

     

    Yen

    Dollars

    Company X

    6.0%

    9.10 %

    Company Y

    5.5%

    11.20 %

    Create a swap that will net a bank 40 basis points per annum. Make sure the swap is equally attractive to both companies and foreign exchange risk is assumed by the bank. 

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