A company borrows $220M for 5-years at 3%, but wants a Euro liability since its revenue comes mostly from Germany. The exchange rate is $1.10. The curren 5-year swap rate is $3.2% versus E3.1%. What is the net result for the company What would happen to the company if the swap counterparty fails at maturity, there is no collateral and the $/E FX rate moves to $1.15?

A company borrows $220M for 5-years at 3%, but wants a Euro liability since its revenue comes mostly from Germany. The exchange rate is $1.10. The curren 5-year swap rate is $3.2% versus E3.1%. What is the net result for the company What would happen to the company if the swap counterparty fails at maturity, there is no collateral and the $/E FX rate moves to $1.15?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company Fixed (%) Floating (%) A 5 LIBOR + 1.2 B 6 LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text. (15 Marks) (Please answer without use of excel)
The firm you work for is Multinational Widget Inc. You are involved in a fixed-for-fixed currency swap between ¥ and $US. The swap has 5 years left to maturity and a principal of $1 million US or ¥100 million. In the swap, you make annual payments of $80,000 to the bank (and also pay the principal at maturity) and you receive annual payments of ¥10,000,000 per year (and also receive the principal at maturity). Assume that when this swap was set up, it was "at market", meaning that the net value to you was zero. If the current spot rate is 90 ¥/$US, the current interest rate for ¥ is 12% and the current interest rate for $US is 10%, what is the value of your swap position? $4,035.50 US $5,565.250 US $80,345.50 US $90,67.50 US None of these
Suppose the U.S. yield curve is flat at 5% and the euro yield curve is flat at 3%. The current exchange rate is $1.25 per euro. What cash flows will be exchanged on a 4-year foreign exchange swap with notional principal of 260 million euros (or equivalently, at current exchange rates, $325 million)? Note: Do not round intermediate calculations. Enter your answer in dollars not millions rounded to the nearest dollar value. Swap rate ......... per year
A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.
Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €11.00 million payable in six months. Currently, the six-month forward exchange rate is $1.15 per euro and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.10 per euro in six months. Required: a. What is the expected gain/loss from a forward hedge? Note: A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your final answer in whole dollars not in millions. b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? d. Suppose now that the future spot exchange rate is forecast to be $1.22 per euro. Would you recommend hedging? a. b. Would you recommend hedging this euro…
As the chief financial officer of a U.S. firm, you expect to receive payment of €1 million in 90 davs. The current spot rate is $1.40 per euro. Your firm will incur losses on the deal if the dollar weakens to less than $1.10 per euro. Please list at least two derivatives and discuss your detailed strategy to hedge against this foreign exchange risk.
2. Suppose that the term structure of interest rates is flat in the United States and Australia. The USD interest rate is 7% per annum and the AUD rate is 9% per annum. The current value of the AUD is 0.62 USD. Under the terms of a swap agreement, a financial institution pays 8% per annum in AUD and receives 4% per annum in USD. The principals in the two currencies are $12 million and 20 million AUD. Payments are exchanges every year, with one exchange having just taken place. The swap will last two more years. What is the value of the swap to the financial institution? Assume all interest rate are continuously compounded.
The current exchange rate is 0.8000 Swiss francs per dollar. A5-year U.S. government bond has a 3% yield, and a 5-year Swissgovernment bond has a yield of 2%. What is the expected 5-yearforward rate? (0.7619 Swiss francs per dollar) (Hint: Rememberthat the interest rate parity equation is for direct quotes.)
Give typing answer with explanation and conclusion
Suppose there are no transaction costs. If the one year forward rate of the euro is an accurate estimate of the spot rate one year from now, then the actual cost of hedging payable will be: A. positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount. B. positive. C. negative. D. zero.
Company A (a U.S. MNC) wants to borrow £10,000,000 at a fixed rate for five year. Company B (a U.K. MNC) wants to borrow $16,000,000 at a fixed rate for five year. Today's exchange rate is £1- $1.6. The information below summarizes what each company can do without using swaps. Company A Company B $ Loans 8 10.6 £ Loans 11.6 12.4 If Company A wants to save 0.3% of the £10,000,000 loan through a Swap Bank, and If Company B wants to save 0.2% of the $16,000,000 loan through a Swap Bank. How much can the Swap bank earn on pound (£) loans (in terms of %) after meeting Company A and Company B's demand? (if your answer is 1.34%, just enter "1.34". If your answer is -1.34%, just enter"-1.34").
Subject:- finance

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS