1. Briefly explain the following: a. You want to sell your bond that has a par value of ₱100,000 plus a 5 percent annual coupon rate that will mature after one year. The prevailing interest rate is 8%. Will you be able to sell your bond for ₱100,000 or higher? Briefly explain your answer. b. Is it possible for a country to have a twin deficit (a budget deficit and trade deficit) at the same time? How will this affect the economy? Briefly explain the benefits and dangers of a twin deficit. c. Which is better for the receiving country, FDI or FPI? Briefly explain your answer.

1. Briefly explain the following: a. You want to sell your bond that has a par value of ₱100,000 plus a 5 percent annual coupon rate that will mature after one year. The prevailing interest rate is 8%. Will you be able to sell your bond for ₱100,000 or higher? Briefly explain your answer. b. Is it possible for a country to have a twin deficit (a budget deficit and trade deficit) at the same time? How will this affect the economy? Briefly explain the benefits and dangers of a twin deficit. c. Which is better for the receiving country, FDI or FPI? Briefly explain your answer.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 2P

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Suppose the central bank wishes to increase the money supply by $500 million and does so by purchasing one-year zero coupon bonds from an economic agent to increase bank reserves. If the central bank buys bonds with an interest rate of 2.5%, how many bonds must they buy to reach their targeted increase in the money supply? Assume the required reserve ratio is 10% and commercial banks fully loan out. Hint: you will need to use the money multiplier in this answer as well as bond pricing - a zero coupon bond is a promise to pay $1000 in one year. Assume there is no currency in the
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Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B’s credit standing is such that it would pay prime + 3 percent. The current prime rate is 6.55 percent, the 30-year Treasury bond yield is 4.30 percent, the three-month Treasury bill yield is 3.47 percent, and the 10-year Treasury note yield is 4.23 percent. Now suppose that Firm B decides to get a term loan for 10 years. What is the loan rate for the firm? Firm B's loan rate % How does this affect the company’s borrowing cost? Company's borrowing cost will (increase/ remain the same / decrease) .
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Suppose two firms want to borrow money from a bank for a period of 10 years. Firm A has excellent credit and can borrow at the prime rate, whereas Firm B's credit standing is prime rate plus 2 percent. The current prime rate is 5.75 percent, the 30-year Treasury bond yield is 4.35 percent, the three-month Treasury bill yield is 3.54 percent, and the 10-year Treasury note yield is 4.24 percent. What are the appropriate loan rates for both the firms? 6.45% for Firm A, 7.75% for Firm B 6.45% for Firm A, 8.45% for Firm B 5.75% for Firm A, 8.45% for Firm B None of the above
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1. Suppose you are the proud owner of a $100,000 face-value Zimbabwe government bond having five years remaining to maturity with a fixed coupon interest rate of 5%. (a) Assume the bond pays semi-annual interest and that it is currently priced with a 40% yield-to-maturity. What is its current selling price? (b) The Zimbabwe government has proposed the following: in exchange for the bond you will receive an upfront cash payment equal to 15% of the original bond’s face value along with a new five-year bond paying a 2.5% coupon interest rate (paid semiannually) but with the face value reduced by 50 percent. Suppose markets indicate that these new bonds will be priced with a 20% yield-to-maturity. What would be the change in the present value of your investment if you participate in the exchange?