Suppose that you have entered into a 3-year swap contract with the Swap desk at swap out your New Zealand dollar debt into fixed-rate Swiss francs debt. It involves exchanging interest at 4.8% per annum on NZD 25 million for interest at 6.2% per annum on Swiss francs 20 million twice a year. Assume that 2 years have passed since you entered into the transaction. If the swap were negotiated today, the interest rates exchanged would be 5.2% per annum for NZD and 7% per annum for CHF. The current exchange rate is NZD1.15/CHF. What is the net present value of the swap to you? You can assume that the term structures of interest rates in both currencies are flat (i.e., interest rates will be onl

Suppose that you have entered into a 3-year swap contract with the Swap desk at swap out your New Zealand dollar debt into fixed-rate Swiss francs debt. It involves exchanging interest at 4.8% per annum on NZD 25 million for interest at 6.2% per annum on Swiss francs 20 million twice a year. Assume that 2 years have passed since you entered into the transaction. If the swap were negotiated today, the interest rates exchanged would be 5.2% per annum for NZD and 7% per annum for CHF. The current exchange rate is NZD1.15/CHF. What is the net present value of the swap to you? You can assume that the term structures of interest rates in both currencies are flat (i.e., interest rates will be onl

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 that a commodity’s respective forward prices for 1 year and 2 years are $150 and $158. The 1-year effective annual interest rate is 5.9%, and the 2-year interest rate is 6.6%. You will pay a fixed rate of $153.85906 in a 2-year swap and receive the floating rate. At the time you enter the swap contract, its value to you is... A.$0.0084 B.$–0.0084 C.$0.0051 D.. $–0.0051 E.$000000
In June 2021, swap dealers were quoting a rate for five-year sterling interest-rate swaps of 5.00% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 4.60%. Suppose that A arranges with a dealer to swap a £10 million five-year fixed- rate loan for an equivalent floating-rate loan, answer the following: Note: Leave no cells blank - be certain to enter "0" wherever required. a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1.6%. Who gains and who loses? c. What is now the value of the swap to A for each £1,000 of par value? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. a. Swap value b. Who gains and who loses? c. Swap value
Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year swap interest rates are quoted in the table below. At what rate will Tyson receive dollars and at what rate will Tyson pay euros? Question 8 options: Receive at 2.28% and pay at 1.89% Receive at 2.23% and pay at 1.95% Receive at 2.28% and pay at 1.95% Receive at 2.23% and pay at 1.89%
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
In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 4.5% against Euribor (the short-term) interest rate for euro loans). Euribor at the time was 4.1%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed- rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "0" wherever required.) a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? Swap value b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1%. Who gains and who loses? Dealer gains; A loses O A gains; Dealer loses c. What is now the value of the swap to A for each €1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Swap value
Consider a 4-year 5% bond swap in euros for 1 million notional value. In other words, there will be three interest payments followed by a final payment of interest plus principal, all made in euros. Assume that the appropriate discount rate is 9% and the spot rate is 1.05 USD/EUR when answering the following questions related to possible swap contracts. a. What is the net present value of the payments described above (in euros)? b. If you want to offset the euro payments with a single USD payment at the end of year two, what is the appropriate amount? (This could be described as a bullet repayment.) c. Alternatively, if you want to offset the euro payments with four equal USD payments at the end of each year, what is the appropriate amount? (This could be described as an annuity repayment.) Show work
In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 5.4% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 5.0%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed-rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "O0" wherever required.) a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into? Swap value b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 2.0%. Who gains and who loses? Dealer gains; A loses A gains; Dealer loses c. What is now the value of the swap to A for each €1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Swap value
Suppose the spot price of a euro in dollars is $0.932. The U.S. interest rate for 90 days is 6.875% and the euro rate for 90 days is 4.450%. All interest calculations are done as rate times (#days/360). a. What is the rate for a 90-day forward contract on the euro? b. Suppose the euro forward contract is currently quoted at $0.95. What type of transaction(s) should an arbitrageur conduct to take advantage of the apparent mispricing Only typed answer
An investor enters into a 2-year swap agreement to swap euros at $1.32 per euro. Soon after the swap is created forward prices rise and the new swap price on a similar swap is $1.45. If dollar denominated interest rates are 4.0% and 4.5% on 1- and 2-year zero coupon government bonds, respectively, what is the gain to be made from unwrapping the original swap agreement?
Suppose that Banco Bradesco in Brazil would like to enter a swap for USD100,000 three months from now for six months and the following quotes are available. Which of the following statements correctly describes the swap? Exchange Spot Rate BRL/USD 5.05/25 3-month 6-month 12/23 25/36 9-month 47/58 Banco Bradesco buys USD at 5.48 in 3 months' time; and buys BRL at 5.52 in 9 months' time Banco Bradesco buys USD at 5.17 in 3 months' time; and sells BRL at 5.83 in 9 months' time Banco Bradesco buy USD at 5.48 in 3 months' time; and sells BRL at 5.3 in 6 months' time Banco Bradesco buys USD spot at 5.05; and sells BRL at 5.61 at in 6 months' time
Company A and B has been offered the following rates per annum on a £50 million, 10 - year loan. (SEE PICTURE) Design a swap that is most beneficial to Company A, explain using text and diagram
Suppose you are a speculator from France. You observe the following 1-year interest rates, spot exchange rates and forward prices. Forward contract sizes are $10,000 each. Exchange rate €0.6500 = $1.00 €0.6731 = $1.00 Interest rate APR So(€/S) is 3% F3so(€/S) 4% Assume you did your own calculation of the forward price based on interest rate parity (IRP). It shows that an arbitrage opportunity exists because the forward price that you calculated is: F3so(€/S) of €0.6563 = $1.00. What actions will you take to make use of the arbitrage opportunity and what will your profit be? Page 1 of 5 а. €167.89. b. €240.24. C. $70.29. d. $43.08. е. None of the above. See my workings below.