Consider the currency Swap between firm A and firm B. Firm A is able to borrow...
Consider the currency Swap between firm A and firm B. Firm A is able to borrow in the European market at 8.75% per annum (fixed rate) and at the floating rate of LIBOR - 0.25%. Firm B is able to borrow in the fixed market rate equal to 9.50% and at the floating rate of LIBOR + 1.10%. Which of the following is true?
Select one:
a. The swap between A and B is mutually advantageous and reflects a case of gains from absolute advantage.
b. The swap between A and B is mutually advantageous and reflects a case of gains from comparative advantage.
c. The swap between A and B is not mutually advantageous and should not be carried out.
d. Forward transactions would have been better than swap transactions for firm A.
e. None of the above.
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