ABC Corp. borrows $5 million at 10% from a bank and swaps this loan for a 12% yen loan. The spot exchange rate is JPY105 = USD1. How much does ABC pay annually to the bank? Multiple Choice ¥1.26 million ¥5.71 million Wrong ¥52.50 million ¥63.00 million

ABC Corp. borrows $5 million at 10% from a bank and swaps this loan for a 12% yen loan. The spot exchange rate is JPY105 = USD1. How much does ABC pay annually to the bank? Multiple Choice ¥1.26 million ¥5.71 million Wrong ¥52.50 million ¥63.00 million

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

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A U.S. bank converted $6 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.153 francs per dollar. The borrower agreed to repay the principal plus 5.2 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.423 francs per dollar. What was the bank's dollar rate of return? (Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.165))
TB SA Qu. 06-69 If you had borrowed $1,000,000.... Use the information below to answer the following question. Exchange Rate $ 1.60 €1.00 $1.58 € 1.00 So ( $/ €) F360 ($/C) Interest Rate is ic APR 28 4% If you had borrowed $1,000,000, traded them for euro at the spot rate, and invested those euros in Europe, how many euros will you receive in one year?
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Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company A Fixed (%) Floating (%) LIBOR + 1.2 B 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.
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
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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.

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