ABC has not tapped the euro public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating rate dollar borrower, which it can be at LIBOR + 2%. XYZ strongly prefers fixed rate euro debt, but it must pay 1.5% more than the 6 % coupon that ABC’s euro notes would carry. XYZ, however, can obtain Eurodollars at LIBOR + 0.75%.
What is the maximum possible cost savings to ABC from engaging in a currency swap with XYZ?
What is the maximum possible cost savings to XYZ from engaging in a currency swap with ABC?
Please explain how you got the answer