Company X can borrow U.S. dollars at a rate of 7% , and can borrow Japanese yen at 2%. Company Z faces a dollar borrowing rate of 9% and a yen rate of 2%. The commercial needs of Company X are to borrow yen, while Company Z desires to raise dollars. Is it possible for these two companies to enter a currency swap arrangement that will reduce their borrowing costs relative to their costs if no swap were used()
A. Yes, X should borrow dollars, Z should borrow yen, and the companies should enter a currency swap.
B. No, Bout companies do not have relative advantages that can be exploited.
C. Yes, X should borrow yen, Z should borrow dollars, and the companies should enter a currency swap.