UBS is a US MNC that has operations in Europe, the Middle East, and Africa. It has identified needs of leverage of USD25 million in 7 months for a six-month period. To lock in the rate on this loan, UBS sells a forward rate agreement on LIBOR6 at 5.938% to HSBC for a notional principal of USD285 million. In 7 months' time, LIBOR6 is 4.371%. How much will UBS pay to HSBC assuming 360 days in a year? O a. USD2.185217 million Ob. USD4.278918 million Oc. USD2.168590 million Od. USD0.191686 million Oe USD2.540365 million

UBS is a US MNC that has operations in Europe, the Middle East, and Africa. It has identified needs of leverage of USD25 million in 7 months for a six-month period. To lock in the rate on this loan, UBS sells a forward rate agreement on LIBOR6 at 5.938% to HSBC for a notional principal of USD285 million. In 7 months' time, LIBOR6 is 4.371%. How much will UBS pay to HSBC assuming 360 days in a year? O a. USD2.185217 million Ob. USD4.278918 million Oc. USD2.168590 million Od. USD0.191686 million Oe USD2.540365 million

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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Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. Return if dollar appreciates C. Return if dollar depreciates Appreciation 10.440 % 32.440 %
East Asiatic-Thailand. The East Asiatic Company (EAC), a Danish company with subsidiaries throughout Asia, has been funding its Bangkok subsidiary primarily with U.S. dollar debt because of the cost and availability of dollar capital as opposed to Thai baht-denominated (THB) debt. The treasurer of EAC-Thailand is considering a 1-year bank loan for USD252,000. The current spot rate is THB32.03 = USD1.00, and the dollar-based interest is 6.71% for the 1-year period. 1-year loans are 11.97% in baht. a. Assuming expected inflation rates for the coming year of 4.1% and 1.25% in Thailand and the United States, respectively, according to purchase power parity, what would be the effective cost of funds in Thai baht terms? b. If EAC's foreign exchange advisers believe strongly that the Thai government wants to push the value of the baht down against the dollar by 5% over the coming year (to promote its export competitiveness in dollar markets), what might be the effective cost of funds in baht…
TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loanhas a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more yearsto go. Daibochi, a Japanese plastics maker with operations in Malaysia has justnegotiated a RM 5 million, 5-year loan with Maybank at 7.5% annual interest. Bothcompanies are worried about the foreign exchange exposure. Design a currency swapthat will enable both companies to manage exchange rate risk. (Assume debt servicingwill be on 6-monthly basis, the spot Yen/Ringgit rate is 10 Yen/Ringgit).
Steiner Co. recently established a subsidiary in Belarus. Given its immediate success, a rival company has offered Steiner Co. 10 million rubles to purchase the subsidiary today. The Belarusian ruble currently trades at $0.30, and Steiner internally forecasts the ruble to appreciate to $0.33 next year and $0.35 the following. If Steiner continues operating its subsidiary, the company expects to generate 5 million rubles in free cash next year and 10 million rubles the following. These cash flows would be remitted back to the parent in the U.S. at the end of the year in which they are earned. Steiner's required rate of return on similar projects is 20 percent. How much more/(less) would Steiner make by selling the company vs. running its subsidiary for the next two years? $805,556 O (-$327,270) O $1,111,111 O $908,750
A. Suppose, Company ABC is U.S. based company and has a British subsidiary. It is expected that the subsidiary will send 10 million pounds in two months to the Company. Thus, Company ABC is concerned that in the next two months the pound will depreciate in value. i) A Firm buys an FRA on 90-day LIBOR expiring in 30 days with Notional principal of $20 million. The contract rate is 10%. If at expiration, LIBOR is 8%, how much will the long has to pay to the short i.e., seller of FRA. What happens if at expiration, LIBOR is 12%?
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Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
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Zimmer, a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14.5 million and is expected to generate annual net cash flows of €2.15 million for a period of 12 years and then the operation will be sold for €1 million (net of taxes). The cost of capital for the project is 14%. Using a spot exchange rate of $1.25/€ as the forecast FX rate for the euro for the term of the project, compute the NPV of this expansion project.
Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use theproceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. TheCanadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on thisinformation, should Smart Banking Corp. borrow U.S. dollars and invest in Canadiandollars? What would be the gain or loss in U.S. dollars?
Suppose, Company ABC is U.S. based company and has a British subsidiary. It is expected that the subsidiary will send 10 million pounds in two months to the Company. Thus, Company ABC is concerned that in the next two months the pound will depreciate in value. A Firm buys an FRA on 90-day LIBOR expiring in 30 days with Notional principal of $20 million. The contract rate is 10%. If at expiration, LIBOR is 8%, how much will the long has to pay to the short i.e., seller of FRA. What happens if at expiration, LIBOR is 12%?

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