Company A and B were offered the following rates per annum on a $20 million five-year loan. Company A requires a floating-rate loan: company B requires a fixed-rate loan. Which statement below is true? Company A Company B Fixed Rate 5.0% 6.4% Floating Rate LIBOR+0.1% LIBOR+0.6% O [A] Company A has an apparent comparative advantage in floating-rate market. O [8] Company B has an apparent comparative advantage in foxed-rate market. OIC Company A has an apparent comparative advantage in foxed-rate market.

Company A and B were offered the following rates per annum on a $20 million five-year loan. Company A requires a floating-rate loan: company B requires a fixed-rate loan. Which statement below is true? Company A Company B Fixed Rate 5.0% 6.4% Floating Rate LIBOR+0.1% LIBOR+0.6% O [A] Company A has an apparent comparative advantage in floating-rate market. O [8] Company B has an apparent comparative advantage in foxed-rate market. OIC Company A has an apparent comparative advantage in foxed-rate market.

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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D6) If the foreign interest rate is 4%, the risk premium on domestic assets, ρ, is 18%, and the expected rate of depreciation of the domestic currency against the foreign currency is 3%, what is the domestic interest rate in percentage terms, given covered interest parity holds? [All variables have a 1-year time frame.]
2 Companies A and B face the following interest rates: Company A 3% Company B x% UK pounds (fixed rate) US dollars (floating rate) LIBOR-0.25% LIBOR-0.5% (i) Assuming that A wants to borrow in British pounds at a fixed rate and B wants to borrow in US dollars at a floating rate, derive a lower or upper bound for x that allows these companies to enter into a profitable swap agreement. (ii) Assume now that x = 2.5%, design a swap that is equally at- tractive to both companies arranged by a financial intermediary that makes a profit of 0.05% from these operations. (iii) Assume now that x = 2.8%, describe the conditions under which a swap contract between A and B makes sense. Design a swap that is equally attractive to both companies without a financial intermediary.
Company A wants to borrow US Dollar (USD) at a floating rate of interest and Company B want to borrow Australian Dollar (AUD) at a fixed rate of interest. They have been quoted the following rates by Bank C. USD AUD Company A LIBOR +0.5% 5.0% Company B LIBOR+1.0% 6.5% Develop an interest rate swap that will net the bank 50 basis point spread and will appear equally attractive to Company A and Company B. Explain your answer.
Leader Inc. has the following foreign financing: The company borrowed US$350,000, for five years, when US$1.00 = Cdn$1.02. The exchange rate at the end of the first year is US$1.00 = Cdn$1.03, and at the end of the second year is US$1.00 = Cdn$0.99. Assume the debt was raised at par. Ignore interest. Required: How much exchange gain or loss would be shown in earnings in the second year? (Do not round intermediate calculations.) Exchange Earnings in second year Gain Loss
Lafayette Group (U.S.). The Lafayette Group, a private equity firm headquartered in Boston, borrows £5,000,000 for one year at 7.375% interest. a. What is the dollar cost of this debt if the pound depreciates from $2.0260 = £1.00 to $1.9460 = £1.00 over the year? b. What is the dollar cost of this debt if the pound appreciates from $2.0260 = £1.00 to $2.1640 = £1.00 over the year? a. What is the dollar cost of this debt if the pound depreciates from $2.0260 = £1.00 to $1.9460 = £1.00 over the year? % (Round to two decimal places.) b. What is the dollar cost of this debt if the pound appreciates from $2.0260 = £1.00 to $2.1640 = £1.00 over the year? % (Round to two decimal places.)
H1.
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.
please answer both subparts
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.
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
You can borrow and lend at the interest rates of 6.00% in the US and 4.00% in Canada. Based on Interest Rate Parity, the forward premium for CAD should be exactly equal to:

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