XYZ Inc. entered into a three-year cross-currency interest rate swap to receive U.S. dollars and pay Euro (€). XYZ, however, decided to unwind the swap after twoyears. Based on the information below, if XYZ unwinds the swap after two-year, what is the cumulative present value of the remaining dollar cash flows?AssumptionsValuesNotional principal$16000000Original spotexchange rate, $/€1.27New (2-year later)1.37spot exchange rate,$/€Swap Rates3-year Bid3-year AskOriginal: US dollar0.04670.0532Original: Euro0.0180.0274The cumulative present value of the remaining dollar cash flows is $

Given:Notional principal: $16,000,000Original spot exchange rate (dollars per Euro): 1.27Original…

Answered: XYZ Inc. entered into a three-year…

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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Ganado's Cross-Currency Swap: SFr for US$. Ganado Corporation entered into a 3-year cross-currency interest rate swap to receive U.S. dollars and pay Swiss francs. Ganado, however, decided to unwind the swap after one year-thereby having two years left on the settlement costs of unwinding the swap after one year. Repeat the calculations for unwinding, but assume that the following rates now apply: . ..... The notional principal in Swiss francs is SFr. (Round to the nearest Swiss franc.) Data table (Click on the icon a to import the table into a spreadsheet.) Values Assumptioms Notional principal Original spot rate (SFr/$) New (1-year later) spot (SFr/$) Swap Rates 3-Year Bid 3-Year Ask $10,000,000 Original: US dollar 5.56% 5.59% 1.4500 Original: Swiss franc 1.93% 2.01% 1.5000 New fixed US$ interest 5.20% New fixed Swiss franc interest 2.20% Print Done
Suppose that the annual interest rates on 6-months borrowing in Romania and the United States are 12.7 % and 0.8 %, respectively. The current spot rate RON/US$ is 4.00 and 6-months forward rate RON/US$ is 4.21. Does interest rate parity hold? Would it be as a result of covered or uncovered interest arbitrage, why? Determine arbitrage potential in b) using spot rate after six months of RON/US $= 4.25 rather than 6-months forward rate.
If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price of a Canadian Dollar when the current exchange rate is 1.1, and expiration is three years from signing? b) If the Forward price of a Canadian dollar is currently 1.2, how could you use the synthetic to do arbitrage?
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to depreciate from its current level of 0.5 to 0.45 in 30 days. Denver Financial seeks to capitalize on this potential opportunity. Suppose that Denver Financial begins by borrowing NZ$50,000,000 and converting it to U.S. dollars. The following table shows the short-term interest rates (annualized) in the interbank market. Currency U.S. Dollars New Zealand Dollars (NZ$) investment. Lending Rate Borrowing rate (Adjusted for 30-day period) (Adjusted for 30-day period) 6.72% 6.48% In the previous stages of this problem, you found that Denver Financial initially borrowed funds and must repay the equivalent of $22,630,500.00 after 30-days. However, using those funds, Denver Financial was able to secure $25,140,000.00 after 30-days (principal plus interest) due to their Thus, Denver's speculative profit is 7.20% 6.96% (U.S. dollars).
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to depreciate from its current level of 0.5 to 0.45 in 30 days. Denver Financial seeks to capitalize on this potential opportunity. Suppose that Denver Financial begins by borrowing NZ$50,000,000 and converting it to U.S. dollars. The following table shows the short-term interest rates (annualized) in the interbank market. Currency U.S. Dollars New Zealand Dollars (NZ$) investment. Lending Rate Borrowing rate (Adjusted for 30-day period) (Adjusted for 30-day period) 6.72% 6.48% In the previous stages of this problem, you found that Denver Financial initially borrowed funds and must repay the equivalent of $22,630,500.00 after 30-days. However, using those funds, Denver Financial was able to secure $25,140,000.00 after 30-days (principal plus interest) due to their Thus, Denver's speculative profit is 7.20% 6.96% (U.S. dollars).
Mr. Sami contacted his FOREX trader and was informed with the following: the spot rate is USD 0.6545/EUR. It is expected that USD may depreciate by 5% after two months. What will be new exchange rate after depreciation? O a. EUR/USD= 0.7872 O b. 1 EUR= 0.6872 USD OC USD/EUR= 0.7582 O d. EUR O.6872/USD
Pencil corp uses the US dollar and its functional currency. The receivable is not hedged. At December 31, 2020 pencil has the following foreign currency balances: Account receivable (due in 3 months) FC 30,000 Inventory (at cost ) FC 20,000 Fixed assets FC 10,000 The following exchange rates were in effect December 31 spot rate !FC = .6 US December 31 three month forward rate: !FC = .5US Historic rate: !FC = .7US Average exchange rate(2020) !FC = .8US. What is the US dollar equivalent for the total of accounts receivable, inventory and fixed assets that will be reported by pencil on its december 31, 2020 balance sheet.
One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Germany. The spot exchange rate for the US dollar is $1.50 to the EURO. The 12-month forward rate is $1.55i) Assuming you do not have any initial investment funds, suggest a way youmight profit from the pricing inconsistency presented above.ii) Will the situation persist forever? Explain your answer.
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?
XYZ entered into a currency swap with its bank, and borrowed $10 million at 9% and swaps for a 11% yen loan. The spot exchange rate is 95/$. How much is the annual interest to be paid to the bank. (Please use currency swap rating and Answer should be $2,000,000?)
The Bank of US has negotiated a plain vanilla swap with the Bank of EU. Under the agreement, the Bank of US will pay fixed payments of 10 percent to the Bank of EU and receive floating payments equal to (U.S. dollar) LIBOR plus 2 percent from the Bank of EU at the end of each of the next five years. Assume the notional principal is $10 million. At the end of the 1st year, the LIBOR is 9%. Which bank will pay which bank and how much? (show your work)
15) U.S. Bancorp and Wells Fargo & Company entered into the fixed-for floating interest rate swap with the following terms, effective for the reset date:Notional principal: $ 10 millionFixed rate: 6.5%Floating rate: 4.6 % + 220 bpsFrequency of payments: quarterlyWhich of the following is most accurate? Select one: at the settlement date the party which has a floating leg will make a payment of $7 500 at the settlement date the party which has a fixed leg will make a payment of $7 500 at the settlement date the party which has a floating leg will make a payment of $30 000 at the settlement date the party which has a floating leg will make a payment of $680 000, and the party which has a fixed leg will make a payment of $650 000 at the settlement date the party which has a floating leg will make a payment of $170 000, and the party which has a fixed leg will make a payment of $162 500 at the settlement date the party which has a fixed leg will make a payment…

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