It is January 1st, 2020. A bank has five more years remaining in a currency swap according towhich it makes annual interest payments at the end of each year at an effective annual rateof 4% on a 10,000,000USD principal and receives annual interest payments at the end ofeach year at an effective annual rate of 5% on a 13,500,00OCAD principal. The currentUSDCAD exchange rate is 1.35, compute the value of this currency swap for the bank basedon the risk-free zero yields given below in continuously compounded form.所喃|1 year2.6%З year5 year2 year4 yearCAD2.8%3%3.1%3.2%USD3%3.3%3.6%3.8%4%

The value of a swap derivative contract is calculated as the difference between present value of…

Answered: It is January 1st, 2020. A bank has…

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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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,300,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PEl prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: U.S. Dollar per Chinese Yuan (CNY) Date September $ 30, 2020 0.220 December 0.225 31, 2020 September 30, 2021 0.240 December 0.245 31, 2021 September 30, 2022 0.270 Prepare all journal entries related to this foreign currency borrowing. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.
Six-month T-bills have a nominal rate of 3%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 1.50%. In the spot exchange market, 1 yen equals $0.008. If interest rate parity holds, what is the 6-month forward exchange rate? Do not round intermediate calculations. Round your answer to six decimal places. A
Today, each US Dollar can be exchanged for LLL 2.84 in LaLaLand. There is a general belief that three years from now the exchange rate will change to LLL 2.92. This information allows you to find the difference, each year, between the expected inflation rates between the USA and LaLaLand over the next three years. What is it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Difference in annual inflation rates %
The GBPUSD exchange rate was $1.4500 per pound on June 10, 2021. The GBPUSD exchange rate today is $1.2500 per pound. In the past 12 months, has the value of the British pound (relative to the U.S. dollar) increased in value, decreased in value, or remained the same?
The current U.S. dollar-yen spot rate is 150\/$. If the 90-day forward exchange rate is 148 ¥/$ then the yen is selling at a per annum of %. Reminder: Please use one decimal in your answer entry and dot as the decimal point.
A currency swap has a remaining life of 12 months. It involves exchanging interest at 11% on £25 million for interest at 7% on $40 million once a year. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap terms were negotiated today the interest rates exchanged would be 5.5% in dollars and 7.5% in sterling. All interest rates are quoted with annual compounding. The current exchange rate (dollars per pound sterling) is 1.7600. Calculate the current value of the swap to the party paying sterling using the bond valuation approach. What is the value of the swap to the party paying dollars? Calculate the current value of the swap to the party paying sterling by viewing the swap as a portfolio of forward contracts.
On April 1, 2017, Mendoza Company borrowed 500,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2017, and will make a second interest payment on March 31, 2018, when the loan is repaid. Mendoza prepares U.S.-dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 euro:
In a fixed-for-fixed currency swap, 1.1% on a US dollar principal of $127 million is received and 1.7% on a British pound principal of 156 million pounds is paid. The current exchange rate is 1.7 dollar per pound. Interest rates in both countries for all maturities arecurrently 5.9% (continuously compounded. Payments are exchanged every year. The swap has 2.5 years left in its life. What is the value of the swap to the US dollar receiver, in millions of dollars?
The current USD/GBP exchange rate is 1.8 dollars per pound. The six-month forward exchange rate is 1.82. The six-month GBP interest rate is 3% p.a. quarterly compounded. Estimate the six-month USD interest rate (p.a. quarterly compounded, stated in percent).
Q6. A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$? a) 1.50 percent b) 2.50 percent c) 0.50 percent d) 1 percent e) 2.00 percent

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