i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2%...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2% per annum. The ASX 90-day bank bill futures maturing in 90-days quoted as 95.4. (a) Show that there is an arbitrage opportunity. (b) By constructing the appropriate arbitrage portfolio, determine the profit per $100,000 face value of the 90-day bank bill. ii. A Company A, an Australian manufacturer, needs a 3-year US dollar fixed rate loan, and company B, a US multinational needs a 3-year Australian dollar fixed rate loan. They have been quoted the following 3-year semiannually compounded rates: AUD USD Company A Company B 5.1% 4.8% 4.9% 4.4% Updated (a) Design a swap that will net the bank, acting as an intermediary, 10 basis points and provide the remaining benefit evenly to the two companies. The bank assumes all the exchange rate risk. (b) Suppose that the semiannually compounded rates in Australia are 4.6% for all maturities and that the corresponding rates in the US are 4.2% for all maturities. If the current USD/AUD exchange rate is 0.52, and the swap principals are AUD$20 million and USD$10 million, then what is the value of the swap (with the bank) to company A? i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2% per annum. The ASX 90-day bank bill futures maturing in 90-days quoted as 95.4. (a) Show that there is an arbitrage opportunity. (b) By constructing the appropriate arbitrage portfolio, determine the profit per $100,000 face value of the 90-day bank bill. ii. A Company A, an Australian manufacturer, needs a 3-year US dollar fixed rate loan, and company B, a US multinational needs a 3-year Australian dollar fixed rate loan. They have been quoted the following 3-year semiannually compounded rates: AUD USD Company A Company B 5.1% 4.8% 4.9% 4.4% Updated (a) Design a swap that will net the bank, acting as an intermediary, 10 basis points and provide the remaining benefit evenly to the two companies. The bank assumes all the exchange rate risk. (b) Suppose that the semiannually compounded rates in Australia are 4.6% for all maturities and that the corresponding rates in the US are 4.2% for all maturities. If the current USD/AUD exchange rate is 0.52, and the swap principals are AUD$20 million and USD$10 million, then what is the value of the swap (with the bank) to company A?
Expert Answer:
Answer rating: 100% (QA)
ANSWER i Arbitrage Opportunity a First lets calculate the implied 90day rate from the futures contra... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Karamazov Semiconductors is considering an investment to expand its existing line of business. The investment will cost $10 million and is expected to produce after-tax cash flows of $1 million per...
-
Astronomers have recently measured the rotation of gas around what might be a super massive black hole of about 2 billion solar masses at the center of a galaxy. If the radius from the galactic...
-
Sunco Oil produces oil at two wells. Well 1 can produce up to 150,000 barrels per day, and well 2 can produce up to 200,000 barrels per day. It is possible to ship oil directly from the wells to...
-
Dixens Ltd reported the following data (adapted in billions): Assume that in early 2009, an error was discovered which involved the closing stock for 2006 being overstated by 1 billion and the...
-
At the beginning of 2018, Thompson Service, Inc., showed the following amounts in the stockholders' equity section of its balance sheet. Stockholders' equity: Capital stock, $1 par value, 500,000...
-
Upon arriving at the warehouse of the entity, you will likely request the warehouse manager to provide you with a tour. Which of the following are aspects that you will note during the tour and...
-
Lois Griffon, 36 years old, is a senior IT programmer with the Calgary Board of Education at its head office, downtown, at Macleod Trail and 5th Ave SE. Her husband, Peter, is 33 years of age and is...
-
On March 31, 20x1, ABC Company provides a license to Mr. X. Under the license agreement, Mr. X pays a non-refundable upfront fee of P200,000. The license agreement provides Mr. X the right to access...
-
What is Zeroth law of thermodynamics.
-
All of the following interpersonal or soft skills are applicable to managing stakeholder engagement except . . . a. Building trust b. Minimizing conflict c. Active listening d. Overcoming resistance...
-
What are the three categories of processing control?
-
Explain four advantages of NC machine.
-
What are some typical problems with passwords?
-
Six months ago, a bond portfolio manager immunized her bond portfolio with a remaining maturity of 7 years. How does the manager rebalance the portfolio now if a. the duration exceeds remaining...
-
Rewrite the code of Figure 7.3 in Ada, Java, or C#. Figure 7.3: template class queue { item items [max_items]; int next_free, next_full, num_items; public: queue () : next_free (0), next_full(0),...
-
Let Ipq denote the n n matrix with (p, q)-entry equal to 1 and all other entries 0. Show that: If A = [aij], then Ipq AIrs = aqrIps all p, q, r, and s.
-
In each case, find all [a b c d]T m R4 such that the given set is orthogonal. (a) {[1 2 1 O]T, [1 -1 1 3]T, [2 -1 0 -1], [a b c d]T} (b) {[1 0 - 1]T, [2 1 1]T,[l -3 1 0]T, [a b c d}T}
-
Suppose that {X, Y, Z, W) is a basis of R4. Show-that: (a) [X + aW, Y, Z, W) is also a basis of R4 for any choice of the scalar a. (b) {X+ W, Y+ W, Z + IV, W] is also a basis of R4. (c) {X, X+ Y, X+...
-
What is a TSR calculated over one year?
-
What is the sum of future EVA discounted to the cost of capital equal to?
-
Why do EVA adversaries describe it as a great marketing stunt?
Study smarter with the SolutionInn App