ABC PLC is based in the UK and would like to borrow $120,000 for one year to expand to the US market. DEF PLC is based i

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ABC PLC is based in the UK and would like to borrow $120,000 for
one year to expand to the US market. DEF PLC is based in the US and
would like to borrow £100,000 for one year to expand to the UK
market. The GBPUSD exchange rate is 1.20. The table below presents
the annual rates the companies can borrow at:
Borrow in $
Borrow in £
ABC PLC
4.5%
3.2%
DEF PLC
3.6%
4.7%
Question 29: Identify the total surplus that
can be achieved by negotiating a currency swap, assuming the
exchange rate remains unchanged
a) £0
b) £1,100
c) £1,300
d) £2,400
e) £6,800
Question 30: If the currency swap is
intermediated by a financial institution, identify the maximum
margin the institution can charge for the swap to be mutually
beneficial
a) 0bps
b) 89bps
c) 109bps
d) 129bps
e) 149bps