Consider the Situation of Firm a and Firm B $$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$

Essay

Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
$$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$ Explain how this opportunity affects which swap firm A will be willing to participate in.