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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Leader Inc. has the following foreign financing: The company borrowed US$350,000, for five years, when US$1.00 = Cdn$1.02. The exchange rate at the end of the first year is US$1.00 = Cdn$1.03, and at the end of the second year is US$1.00 = Cdn$0.99. Assume the debt was raised at par. Ignore interest. Required: How much exchange gain or loss would be shown in earnings in the second year? (Do not round intermediate calculations.) Exchange Earnings in second year Gain Loss
IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is #105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the United States and 7 percent per annum in Japan. The management of IBM decided to use a money market hedge to deal with this yen account payable. a. Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation. b. Conduct a cash flow analysis of the money market hedge.
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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).
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Bhupatbhai
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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