Pepper Corp. wants to finance an investment worth an amount equivalent to USD 185 million. It can borrow fixed-rate JPY at a rate of 4.56%, or it can borrow floating-rate USD at LIBOR + 0.25%. Truffles Corp. also faces a USD 185 million investment, and it can borrow fixed-rate JPY at a rate of 4.8%, or it can borrow floating-rate USD at LIBOR + 0.88%. Pepper Corp. would like to borrow fixed-rate JPY and Truffles Corp. would like to borrow floating-rate USD. What are the possible cost savings to Pepper Corp. in INR terms from a swap agreement if Westpac charges a fee of 8 basis points to arrange the swap? Assume all remaining cost savings accrue to Pepper Corp. Assume the current exchange rate is JPY75/USD. a. 43.0125 million b. 0.0096 million c. 54.1125 million d. 0.0076 million e. There are no cost savings to Pepper Corp. from a swap.

Pepper Corp. wants to finance an investment worth an amount equivalent to USD 185 million. It can borrow fixed-rate JPY at a rate of 4.56%, or it can borrow floating-rate USD at LIBOR + 0.25%. Truffles Corp. also faces a USD 185 million investment, and it can borrow fixed-rate JPY at a rate of 4.8%, or it can borrow floating-rate USD at LIBOR + 0.88%. Pepper Corp. would like to borrow fixed-rate JPY and Truffles Corp. would like to borrow floating-rate USD. What are the possible cost savings to Pepper Corp. in INR terms from a swap agreement if Westpac charges a fee of 8 basis points to arrange the swap? Assume all remaining cost savings accrue to Pepper Corp. Assume the current exchange rate is JPY75/USD. a. 43.0125 million b. 0.0096 million c. 54.1125 million d. 0.0076 million e. There are no cost savings to Pepper Corp. from a swap.

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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American Pharoah management is planning to make a $ 2.0 million loan to a French firm. Currently, LIBOR is at 1.5 percent. American management considers a default risk premium of 1.30 percent, a foreign exchange rate risk premium of 0.20 percent, and a country risk premium of 0.13 percent to be appropriate for this loan.What is the loan rate charged by American Pharoah?
A commercial bank has $200 million of floating-rate loans yielding the T-bill rate plus 2 percent. These loans are financed with $200 million of fixed-rate deposits costing 9 percent. A savings bank has $200 million of mortgages with a fixed rate of 13 percent. They are financed with $200 million in CDs with a variable rate of T-bill rate plus 3 percent. Propose a swap that would result in each institution having the same type of asset and liability cash flows.
i need parts a,b,c,d
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The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.5 million, a one year period, an initial spot rate of SF1.5000/$, a 5.000% cost of debt, and a 34% tax rate, what is the effective cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was: a. SF1.5000/$ b. SF1.4400/$ c. SF1.3860/$ d. SF1.6240/%
(a) MSAF Ltd (MSAF) would need 3-month US$500,000 loan in two months' time to finance the importation of raw materials for production. MSAF can borrow in the Eurocurrency market at LIBOR plus 200 basis points. The LIBOR is currently sitting at 8%, but management of MSAF fear that interest rate might rise by the time the loan would be taken. To protect MSAF's interest rate risk exposure, management signs a forward rate agreement (FRA) deal with CAPUT Bank Plc. The FRA traded rate is set at 10% on the spot date. Required: i. Discuss three advantages of hedging interest rate risk with a forward rate agreement as against interest rate futures. ii. Suppose the LIBOR settles at 9% in two months' time, evaluate the outcome of the hedge. (b) The PT Group is a multinational group of companies comprising the U.S. parent and three subsidiaries in other countries. Companies within the group trade amongst themselves, and settlement and currency issues have been a major concern. The PT Group has…
An American firm is owed ¥350,000,000.00 payable in one year. The current spot is $0.0120/\. A Japanese bank is paying 1.00% on deposits or will lend at 4.00%. A U.S. bank is paying 4.50% or will lend at 6.50%. The firm would like to hedge this exposure with money market hedging. How much do they need to borrow today? $4,038,461.54 ¥346,534,653.47 ¥336,538,461.54 $4,158,415.84 O None of the alternatives
AMD needs $50 million for 1 year to finance its working capital. The company has two borrowing alternatives:(i) to borrow the full amount in Eurodollars in London at 3.20 % per annum(ii) to borrow HK$ 390 million in Hong Kong at 1.01 % per annum and exchange these HK$ at the then present exchange rate of HK$ 7.8000 per I USD.Calculate the ending exchange rate where AMD would be indifferent between borrowing in USD and HK$.
Kansas Corp., an American company, has a payment of €5.3 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $5,888,889, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €5.3 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $103,000 for a one-year call option on €5.3 million at an exchange rate of 0.88 €/$. a. Suppose that in one year the spot exchange rate is 0.85 €/$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.) Strategy 1 Strategy 2 Net Dollar Cost b. Suppose that in one year the spot exchange rate is 0.95 €/$. What would be Kansas's net dollar cost for the payable under each strategy? (Round your answer to the nearest whole…
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Newstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro. How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer) A. 565,545 USD. B. 554,510 USD. C. 562,786 USD. D. 576,912 USD.
Kansas Corporation, an American company, has a payment of €5.9 million due to Tuscany Corporation one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $ 6,555,556, but Kansas faces the risk that the €/S rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €5.9 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $109,000 for a one-year call option on €5.9 million at an exchange rate of 0.88 €/$. Suppose that in one year the spot exchange rate is 0.85 €/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount. Suppose that in one year the spot exchange rate is 0.95 €/$. What would be Kansas's net dollar cost for the payable under each strategy? Note: Round your answer to the nearest whole dollar amount.

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