The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit. The following data is available: Interest SGD Interest USD SGD company 8.50% 5.75% USD company 7.75% 5.50% Determine whether a beneficial currency swap between the two companies is possible
The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit. The following data is available: Interest SGD Interest USD SGD company 8.50% 5.75% USD company 7.75% 5.50% Determine whether a beneficial currency swap between the two companies is possible
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 46QA
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The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit.
The following data is available:
Interest SGD Interest USD
SGD company 8.50% 5.75%
USD company 7.75% 5.50%
Determine whether a beneficial currency swap between the two companies is possible..
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