Companies A and B have been offered the following rates per annum on a $5 million 10-year loan. USD Swiss Franc Company X Company Y LIBOR +0.3% LIBOR +0.8% 10% 11.4% Company X requires a floating-rate loan; company Y requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 20 basis points per annum and will appear equally attractive to X and Y. a) Illustrate the swap with a cash flow diagram. Mark the currency and interest rate clearly. b) Determine the effective borrowing costs for X and Y.

Companies A and B have been offered the following rates per annum on a $5 million 10-year loan. USD Swiss Franc Company X Company Y LIBOR +0.3% LIBOR +0.8% 10% 11.4% Company X requires a floating-rate loan; company Y requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 20 basis points per annum and will appear equally attractive to X and Y. a) Illustrate the swap with a cash flow diagram. Mark the currency and interest rate clearly. b) Determine the effective borrowing costs for X and Y.

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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DVR Inc. can borrow dollars for five years at a coupon rate of 2.84 percent. Alternatively, it can borrow yen for five years at a rate of .94 percent. The five-year yen swap rates are 0.73–0.70 percent and the dollar swap rates are 2.50–2.53 percent. The currency ¥/$ exchange rate is 87.620. Determine the dollar AIC and the dollar cash flow that DVR Inc. would have to pay under a currency swap where it borrows ¥1,750,000,000 and swaps the debt service into dollars. Borrow: Swap:Provide accurate solution with explanation of all the requirements. Use excel calculations with excel formulas. Provide solution ASAP.
Your company is considering three options for financing its short term operations i. Borrow Tk.25 million from Shuktara Bank at 15 percent interest rate and a 20 percent compensating balance requirement signing a 60 day promissory note. ii. Borrow Tk.25 million from Chandramukhi Bank at 15 percent discount interest. i. Forego discount on a trade credit on terms 3/10, net 50. Strictly based on effective cost, which option would you select and why?
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
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.
You can borrow CAD (Canadian dollar) at 8 percent, which is 2 percent above the swap rate, or at CAD Libor + 1 percent. If you want to borrow at a fixed-rate, what is the best way: direct, or synthetic (that is, using a floating-rate loan and a swap)? Direct borrowing would be to borrow at a fixed rate of 8 percent. Synthetic fixed-rate cad borrowing would be to borrow CAD at a floating rate of Libor + 1 percent and arrange a swap where you pay fixed 6 percent CAD in exchange for receiving CAD Libor.
HSBC recently arranged a three year swap between Oman Oil and Aramco. Oman oil needs US dollar floating rate funds, and Aramco needs US dollar fixed rate funds. The rates at which they can get the required funds in their respective markets are shown in the following table Floating Rate Funds Fixed Rate Funds. Oman Oil LIBOR+ 4% 11% Aramco LIBOR+ 1% 10% ARRANGE A SWAP (you can eitherexplain or drawa diagram)
Commercial bank A and Savings bank B entered into a swap contract. The swap has a notional principal amount of $100 million and calls for Commercial Bank A to make annual floating interest rate payment of LIBOR minus 1% to Savings Bank B. In return, Savings Bank B pays fixed 8% interest rate to Commercial Bank A. If LIBOR is 8%, what is the net payment? Commercial Bank A Savings Bank B Savings Bank B pays Commercial Bank A by $1 million Commercial Bank A pays Savings Bank B by $1 million Net pay is 0 Can’t get the answer based on the given information
15. The table below presents the costs of borrowing for Caterpillar and Tesla, and the a Swap Bank quote against LIBOR. Caterpillar would like to get a $5,000,000.00 floating rate loan. Tesla would like to get a $5,000,000.00 fixed rate loan. How much can Tesla save each year by entering a swap agreement? (a) $37,000 (b) $9,500 (c) $8,000 (d) $27,500 Fixed-Rate Borrowing Cost Floating-Rate Borrowing Cost Caterpillar Tesla 3.00 6.50 LIBOR LIBOR +2.60 Swap Bank Quote Bid Ask 3.19% 3.74% (e) None of the above
Suppose a bank enters a repurchase agreement in which it agrees to sell Treasury securities to a correspondent bank at a price of $9999827 with the promise to buy them back at a price of $10000090. Calculate the yield on the repo if it has a 5-day maturity.

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