Question 1: Phillips Electronics wants to borrow U.S dollars at a fixed rate of interest....
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Question 1: Phillips Electronics wants to borrow U.S dollars at a fixed rate of interest. General Electric wishes to borrow Euros at a fixed rate of interest. The principal amount are the same between the two companies at the currently established exchange rate of The table below reflects the tax adjusted interest rates that the companies are can borrow at.
| Euros | Dollars | |
| Phillips Electronics | 6.0% | 8.8 |
| General Electric | 7.6% | 9.2 |
Create a swap that will net the bank a total of 60 basis points per annum. This swap should be equally desirable to both companies while any and all exchange rate risk is born by the bank.
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