Suppose that the term structure of risk-free interest rates is flat in the United States and Australia. The USD interest rate is 5.9% per annum and the AUD rate is 5.7% per annum. The current value of the AUD is 0.57 USD. Under the terms of a swap agreement, a financial institution pays 2.0% per annum in AUD and receives 5.0% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the USD value of the swap to the financial institution? Assume all interest rates are continuously compounded. Enter your answer rounded to the nearest integer,

Suppose that the term structure of risk-free interest rates is flat in the United States and Australia. The USD interest rate is 5.9% per annum and the AUD rate is 5.7% per annum. The current value of the AUD is 0.57 USD. Under the terms of a swap agreement, a financial institution pays 2.0% per annum in AUD and receives 5.0% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the USD value of the swap to the financial institution? Assume all interest rates are continuously compounded. Enter your answer rounded to the nearest integer,

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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Currently, the spot rate is RM4.2000/USD and the one year forward rate is RM4.1000/USD. Interest rate in United States is 3% per annum and in Malaysia is 2% per annum. Assume that you can borrow as much as USD100,000 or RM420,000 for your coming project. If Interest Rate Parity (IRP) is not holding, determine how would you carry out covered interest arbitrage (CIA) and compute the profit.
Please answer all parts
The USD-GBP (Pound Sterling) exchange rate is 1.38. The USD interest rate is 2% per annum, and the GBP interest rate is 1% per annum. According to the Black-Scholes-Merton model, what is the price of a European call option on the exchange rate with a strike price of 1.50 and maturing after 18 months. The volatility of the exchange rate is 20%. The contract multiplier is 100. a. $9.90 b. $12.28 c. $11.67 d. $9.43 e. $10.96
Assume the following information: Spot rate of U.S. dollar Quoted Price AUD1.2500/USD 180-day forward rate of U.S. dollar 180-day Australian interest rate (a periodic rate) 180-day U.S. interest rate (a periodic rate) AUD1.2800/USD 4.75% 3.10% A. What USD-denominated percent rate of return can a US investor earn if they attempt covered interest arbitrage? (to two decimal places like 6.54%) B. What AUD-denominated percent rate of return can an Australian investor earn if they attempt covered interest arbitrage? (to two decimal places like 6.54%) C. Given this information, who has a covered interest arbitrage opportunity? Answer either "Australian investors" or "U.S. investors". D. What changes in the 2 quoted prices above would likely occur to eliminate any further possibilities of covered interest arbitrage? (answer with just or 1) Spot rate of U.S. dollar 180-day forward rate of U.S. dollar
Please quickly and with neat explanation.
Assume that interest rate parity holds. The Mexican interest rate is 50 percent, and the U.S. interest rate is 8 percent. Subsequently, the U.S. will interest rate decreases to 7 percent. According to interest rate parity, the peso's forward O a. premium; decrease O b. premium: increase O c. discount; decrease O d. discount; increase
Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company A Fixed (%) Floating (%) LIBOR + 1.2 B LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text.
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. 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 SF 1.6 million, a one-year period, an initial spot rate of SF 1.4600/$, a 4.934% cost of debt, and a 38% tax rate, what is the effective after-tax 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. 1.4600SF/$ b. 1.4000SF/$ c. 1.3350SF/$ d. 1.5730SF/$
Find the attached file.
a. You notice that the 9-month risk free interest rates in the UK is 4% per annum withcontinuous compounding and the US rate is 7% per annum, with continuous compounding.The spot price of the Pound Sterling is $0.2500. Assume the US is your home country.Answer the following:i. What is the no-arbitrage price of the 9-month futures contract? ii. You observe that the 9-month futures price in the market is $0.2775. State why anarbitrage opportunity exists and explain how you would take advantage of thisarbitrage opportunity.(Hint: Your answer should include your general strategy in broad terms and your step-bystep approach to exploiting the arbitrage opportunity using numbers from this question)
Today, $1 = 1.82 Euro and $1 = 130 Korean Won. In the 90-day forward market, $1 = 1.84 Euro and $1 = 127 Korean Won. Which of the following statements is most correct when interest rate parity holds? Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Euro securities. Since interest rate parity holds, interest rates should be the same in all three countries. Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Korean securities. Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Korean securities.
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.

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