You are an analyst in the treasury department of the Maritime Bank (MB). One of your corporate customers is interested in a US$100 million loan for two years. Your bank decides to fund the loan from a yen loan. Your bank agrees to borrow ¥12.8 billion at an interest rate of 1.2 percent, paid semiannually, for a period of two years. It then enters into a two-year yen/dollar swap with Citibank on a notional principal amount of $100 million (¥12.8 billion at the current spot rate). Every six months, MB pays Citibank U.S. dollar 6 M LIBOR, while citibank makes payments to MB of 1.3 percent annually in yen. At maturity, Citibank and MB reverse the notional principals. Assume that LIBOR6 (annualized) and the ¥/$ exchange rate evolve as follows. Calculate the net dollar amount that MB pays to Citibank("-") or receives from BT ("+") each six-month period.
You are an analyst in the treasury department of the Maritime Bank (MB). One of your corporate customers is interested in a US$100 million loan for two years. Your bank decides to fund the loan from a yen loan. Your bank agrees to borrow ¥12.8 billion at an interest rate of 1.2 percent, paid semiannually, for a period of two years. It then enters into a two-year yen/dollar swap with Citibank on a notional principal amount of $100 million (¥12.8 billion at the current spot rate). Every six months, MB pays Citibank U.S. dollar 6 M LIBOR, while citibank makes payments to MB of 1.3 percent annually in yen. At maturity, Citibank and MB reverse the notional principals.
- Assume that LIBOR6 (annualized) and the ¥/$ exchange rate evolve as follows. Calculate the net dollar amount that MB pays to Citibank("-") or receives from BT ("+") each six-month period.
|
Time (months) |
LIBOR6 |
¥/$ (spot) |
Net $ receipt (+)/payment (-) |
|
t |
5.7% |
128 |
|
|
t + 6 |
5.4% |
132 |
|
|
t + 12 |
5.3% |
137 |
|
|
t + 18 |
5.9% |
131 |
|
|
t + 24 |
5.8% |
123 |
|
What is the all-in dollar cost of MB’s loan?
Does it make sense for MB to hedge its receipt of yen from Citibank? Explain.
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Ok, but how did you get the $630,303.03, $607,299.27, $635,114.50 and $676,422.76 under the second table listed in the columb Respective $ Value Of Receivables?
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