Exchange rates: $/JPY $/Won $/CAD S/GRP S/AUS S/ZAR Current borrowing interest rates on loans USA Japan...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Exchange rates: $/JPY $/Won $/CAD S/GRP S/AUS S/ZAR Current borrowing interest rates on loans USA Japan South Korea Canada UK Australia South Africe 1 2 3 Big 0.0094 0.0006 0.7611 1.3034 0.7225 0.0606 Spot Question 3: (16 marks) Ask 0.0095 0.0008 0.7616 1.3038 0.7226 0.0507 Fixed 0.6-10% 0.525% 1.169% 0.66b% 0.577% 0.61250 5.0-15% BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Yen Won CADS S AUS ZAR Bid% Ask 4 Years Bid% Ask Bid% Ask Did% Ask% Bid% Ask% Bid% Ask% Did% 0.630 D.650 0.513 0.535 1.154 1.174 D.656 0.676 0.567 0.587 D.G07 0.622 5.035 5.055 0.640 D.GGO 0.525 0.545 1.164 1.184 D.GGG 0.686 0.577 0.597 0.612 0.432 5.045 5.0005 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 0.660 0.680 0.545 0.565 1.184 1.204 0.685 0.706 0.597 0.617 0.632 0.552 5.065 5.085 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 01.680 0.700 0.569 0.585 1.204 1.774 D.706 0.776 0.617 0.647 D.657 0.677 5.085 5.105 0.690 D.710 0.575 0.595 1.214 1.234 D.716 0.736 0.627 0.647 D.EGZ D.687 5.095 5.115 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 0./10 0.730 0.595 0.615 1.234 1.254 0.736 0.756 0.647 0.667 0.682 0./02 5.115 5.135 10 0.720 0.740 0.605 0.625 1.244 1.264 0.746 0.766 0.657 0.677 5 0.662 5.075 5.095 G 7 8 9 0.692 0.712 5.125 5.145 GBP Other summarised information: United Kingdom subsidiary profits generated quarterly: Import cost of equipment/machinery for the manufacturing of electronic components in the U.S.A: Tibor 0.130% 0.015% 0.004% 0.156% 0.067% 0.102% 1.535% Period of time that the components can be paid (in years) Number of payments per year Amount of each payment: 500,000 X63,000,000 3 4 25,750,000 a. The profit generated by the subsidiary in the U.K. is considered as a good source of money to be used to pay for the import of manufacturing equipment from Japan for the electronic component plant in the U.S.A. The CEO has already entered into negotiations with the Japan supplier of the equipment. The supplier is willing to provide HighTech 3 years to pay for the equipment that will be shipped to HighTech, but the payments must be con- ducted with quarterly instalments of 5,250,000 Yen by the U.K. subsidiary. This is why the CEO wants you to construct a currency swap arrangement where the profits of the U.K. subsidiary can be used to pay for the equipment. You have to apply the swap bank quotes to conduct this three year swap and also depict the swap graphically for the CEO to see how the swap will work. Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values below: (6 marks) Yen notional principal - www. Japanese exporter National Yen swap principal Question What is forfaiting? (Give an explanation). (3 marks) Why can forfaiting occur? (1 mark) Swap bank Implication on the swap transaction (State whether impacts the swap or not and the reason for it). (1 mark) UK subsidiary b. Explain to the CEO what forfaiting is, why it is possible that forfaiting of the transaction can occur and the implication that it will have on the swap transaction. (4 marks) Provide your answers in space provided below: Your answer principal National GBP swap GBP notional principal- Exchange rates: $/JPY $/Won $/CAD S/GRP S/AUS S/ZAR Current borrowing interest rates on loans USA Japan South Korea Canada UK Australia South Africe 1 2 3 Big 0.0094 0.0006 0.7611 1.3034 0.7225 0.0606 Spot Question 3: (16 marks) Ask 0.0095 0.0008 0.7616 1.3038 0.7226 0.0507 Fixed 0.6-10% 0.525% 1.169% 0.66b% 0.577% 0.61250 5.0-15% BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Yen Won CADS S AUS ZAR Bid% Ask 4 Years Bid% Ask Bid% Ask Did% Ask% Bid% Ask% Bid% Ask% Did% 0.630 D.650 0.513 0.535 1.154 1.174 D.656 0.676 0.567 0.587 D.G07 0.622 5.035 5.055 0.640 D.GGO 0.525 0.545 1.164 1.184 D.GGG 0.686 0.577 0.597 0.612 0.432 5.045 5.0005 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 0.660 0.680 0.545 0.565 1.184 1.204 0.685 0.706 0.597 0.617 0.632 0.552 5.065 5.085 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 01.680 0.700 0.569 0.585 1.204 1.774 D.706 0.776 0.617 0.647 D.657 0.677 5.085 5.105 0.690 D.710 0.575 0.595 1.214 1.234 D.716 0.736 0.627 0.647 D.EGZ D.687 5.095 5.115 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 0./10 0.730 0.595 0.615 1.234 1.254 0.736 0.756 0.647 0.667 0.682 0./02 5.115 5.135 10 0.720 0.740 0.605 0.625 1.244 1.264 0.746 0.766 0.657 0.677 5 0.662 5.075 5.095 G 7 8 9 0.692 0.712 5.125 5.145 GBP Other summarised information: United Kingdom subsidiary profits generated quarterly: Import cost of equipment/machinery for the manufacturing of electronic components in the U.S.A: Tibor 0.130% 0.015% 0.004% 0.156% 0.067% 0.102% 1.535% Period of time that the components can be paid (in years) Number of payments per year Amount of each payment: 500,000 X63,000,000 3 4 25,750,000 a. The profit generated by the subsidiary in the U.K. is considered as a good source of money to be used to pay for the import of manufacturing equipment from Japan for the electronic component plant in the U.S.A. The CEO has already entered into negotiations with the Japan supplier of the equipment. The supplier is willing to provide HighTech 3 years to pay for the equipment that will be shipped to HighTech, but the payments must be con- ducted with quarterly instalments of 5,250,000 Yen by the U.K. subsidiary. This is why the CEO wants you to construct a currency swap arrangement where the profits of the U.K. subsidiary can be used to pay for the equipment. You have to apply the swap bank quotes to conduct this three year swap and also depict the swap graphically for the CEO to see how the swap will work. Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values below: (6 marks) Yen notional principal - www. Japanese exporter National Yen swap principal Question What is forfaiting? (Give an explanation). (3 marks) Why can forfaiting occur? (1 mark) Swap bank Implication on the swap transaction (State whether impacts the swap or not and the reason for it). (1 mark) UK subsidiary b. Explain to the CEO what forfaiting is, why it is possible that forfaiting of the transaction can occur and the implication that it will have on the swap transaction. (4 marks) Provide your answers in space provided below: Your answer principal National GBP swap GBP notional principal-
Expert Answer:
Answer rating: 100% (QA)
a To construct the currency swap arrangement we need to determine the exchange rates and interest rates involved Based on the information provided the ... View the full answer
Related Book For
Principles of Corporate Finance
ISBN: 978-1260013900
13th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
Posted Date:
Students also viewed these finance questions
-
is this activity considered letters and sounds? The student will name and match letters of the alphabet. Materials Alphabet bulletin board borders or letter-picture strip Cut one alphabet border or...
-
Laker Company reported the following January purchases and sales data for its only product. The Company uses a periodic inventory system. For specific identification, ending inventory consists of 214...
-
The CEO considers the investment in South Africa by entering into an agreement with Electo Co. to expand the existing plant by investing ZAR120, 000,000. The CEO believes MidTech should borrow the...
-
Sam's Furniture uses variance analysis to evaluate manufacturing overhead in its' factory. The information for the June overhead expenditures is as follows: Budgeted output units 22,000...
-
Hartley Company has a production process that involves three processes. Units move through the processes in this order: cutting, stamping, and then polishing. The company had the following...
-
AKEI is an elite desk manufacturer. At the start of May 2015, the following budgeted unit amounts (based on a standard costing system) related to its manufacture of executive desks (made out of oak):...
-
Pure White Automatic Laundry must either have a complete overhaul of its current dry-cleaning system or purchase a new one. Its cost of capital is 18 percent. Pure Whites accountant has developed the...
-
Clarkson Products, Inc., of Clarkson, New York, has the option of? (a) Proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing. (b) Having...
-
Exercise 20-8 (Algo) Change in inventory methods; FIFO method to the LIFO method [LO20-3] Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes....
-
The majority of forensic accounting practice involves the valuation of some type of damages or value of a business. Economic damages are a salient service provided by forensic accountants. Lost...
-
What term refers to a coordinated and targeted series of deceptive emails sent to individuals or organizations with the aim of tricking them into revealing sensitive information or taking malicious...
-
How do structural factors contribute to social stratification, and what mechanisms perpetuate these divisions in post-industrial societies ?
-
What is an affiliate marketing in business and entrepreneur? Which affiliate marketing strategy do you think is the most effective? Why? 2) What are the advantages of an affiliate marketing strategy?...
-
Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building in...
-
What measures can be implemented to ensure organizational resilience and adaptability in the face of disruptive changes in the external environment ?
-
The revenues and expenses of Zenith Travel Service for the year ended August 31, 20Y4, follow: Fees earned Office expense Miscellaneous expense Wages expense $832,255 191,420 16,645 399,480 Prepare...
-
???????1.Calculate VEC??s WACC using the data in Exhibit 1.3. Evaluate the profitability of the project with the NPV, IRR,MIRR, simple payback period, and discounted payback period m Exhibit 1:...
-
Nate prepares slides for his microscope. In 1 day he prepared 12 different slides. Which equation best represents y, the total number of slides Nate prepares in x days if he continues at this rate? A...
-
Under what conditions does r, a stocks market capitalization rate, equal its earningsprice ratio EPS 1 /P 0 ?
-
The difference between the value of a government bond and a similar corporate bond is equal to the value of an option. What is this option, and what is its exercise price?
-
Table 29.18 shows the 2019 financial statements for the Executive Cheese Company. Annual depreciation is 10% of fixed assets at the beginning of the year, plus 10% of new investment. The company...
-
Production and Consumption. What is the production and consumption of China and France without trade? They assume that China and France each have 1,000 production units. With one unit of production...
-
Trade at Frances Domestic Price. Frances domestic price is 2 containers of toys equals 7 cases of wine. Assume China produces 10,000 containers of toys and exports 400 containers to France. Assume...
-
Trade at Chinas Domestic Price. Chinas domestic price is 10 containers of toys equals 7 cases of wine. Assume China produces 10,000 containers of toys and exports 2,000 to France. Assume France...
Study smarter with the SolutionInn App