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Citibank’s Hong Kong office recently offered its corporate clients a new financial product. It offered, for a fee, to stand ready to buy the client’s commercial paper whenever the client chose to issue it. Your firm typically finances its Asian operations by issuing 10-year USD-denominated bonds but is aware that on average yields on commercial paper tend to be lower than the yields it pays on its bonds. Should your firm take Citibank up on its offer? How would you judge whether the fee Citibank would charge is too high, a bargain, or just about right? (Note that your firm believes it can eliminate any interest rate risk at near zero cost using interest rate futures.)
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