Question

1. Suppose Google would like to borrow fixed-rate yen and can borrow them at 4.00% or floating-rate dollars at LIBOR + 0.10%. The Panasonic Corporation would like to borrow floating-rate dollars and can borrow fixed-rate yen at 4.5% or floating-rate dollars at LIBOR + 0.80%. What is the range of possible cost savings that Google can realize through an interest rate/currency swap with Panasonic?

Answer 1

The cost to each party of assessing either the fixed rate yen or the floating rate dollar market for a new debt issue is as follows:

Borrower	Fixed rate Yen Available	Floating rate Dollars Available
Google	4.00%	LIBOR + 0.10%
Panasonic Corporation	4.50%	LIBOR + 0.80%

Difference = (4.00%+LIBOR + 0.80%) – (4.50% + LIBOR + 0.10%) = 0.20

Given the rate difference between the markets, the two parties can achieve a combined 20 basis point savings through Google borrowing Floating rate dollars at LIBOR + 0.10% and Panasonic Corporation borrowing at fixed 4.50% and then do the swap.

the cost savings will be in the range of 20 basis points.

For any further assistance than comment.

Please thumps up, thank you