3. 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 funds in US$ at a fixed rate from a bank in the USA and convert it into ZAR for investment. For this purpose a 5 year (60 month) currency swap transaction will be required. He wants to be provided with a 5 year currency swap proposal. Also depict the swap graphically for the CEO to see how the swap will work. Relevant information, that you will require are provided below:

	Exchange rates:	Spot
		Bid	Ask
	$/JPY	0.0094	0.0095
	$/Won	0.0006	0.0008
	$/CAD	0.7614	0.7616
	$/GBP	1.3034	1.3038
	$/AU$	0.7225	0.7226
	$/ZAR	0.0606	0.0607
	Current borrowing interest rates on loans:	Fixed	Libor
	USA	0.640%	0.130%
	Japan	0.525%	0.015%
	South Korea	1.164%	0.654%
	Canada	0.666%	0.156%
	UK	0.577%	0.067%
	Australia	0.612%	0.102%
	South Africa	5.045%	4.535%
BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE
	$	Yen	Won	CAD$	GBP	AU$	ZAR
Years	Bid%	Ask%	Bid%	Ask%	Bid%	Ask%	Bid%	Ask%	Bid%	Ask%	Bid%	Ask%	Bid%	Ask%
1	0.630	0.650	0.515	0.535	1.154	1.174	0.656	0.676	0.567	0.587	0.602	0.622	5.035	5.055
2	0.640	0.660	0.525	0.545	1.164	1.184	0.666	0.686	0.577	0.597	0.612	0.632	5.045	5.065
3	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
4	0.660	0.680	0.545	0.565	1.184	1.204	0.686	0.706	0.597	0.617	0.632	0.652	5.065	5.085
5	0.670	0.690	0.555	0.575	1.194	1.214	0.696	0.716	0.607	0.627	0.642	0.662	5.075	5.095
6	0.680	0.700	0.565	0.585	1.204	1.224	0.706	0.726	0.617	0.637	0.652	0.672	5.085	5.105
7	0.690	0.710	0.575	0.595	1.214	1.234	0.716	0.736	0.627	0.647	0.662	0.682	5.095	5.115
8	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
9	0.710	0.730	0.595	0.615	1.234	1.254	0.736	0.756	0.647	0.667	0.682	0.702	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	0.692	0.712	5.125	5.145

Other summarised information:
United Kingdom subsidiary profits generated quarterly:	500,000
Estimated 30% share profit in South African plant per month:	R2,000,000
Capital cost of new electric tool plant in South Africa:	R150,000,000
Capital cost of expanding existing plant in South Africa to electronic component manufacturing and electric tool manufacturing:	R120,000,000

Question 3:

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 funds in US$ at a fixed rate from a bank in the USA and convert it into ZAR for investment. For this purpose a 5 year (60 month) currency swap transaction will be required. He wants to be provided with a 5 year currency swap proposal. Also depict the swap graphically for the CEO to see how the swap will work.

Workings:

	Show the figures that should be applied in this column
ZAR to be invested:
Spot exchange rate to purchase ZAR for investment
Borrowing rate in USA to be used:
Value in US$ to be borrowed:

Swap transaction:	In which currency is the swap payment? e.g. in $ or ZAR	State whether the payment is fixed or Libor	State the percentage (%) of the payment
MidTech pays swap bank
MidTech pays swap bank
MidTech receives from swap bank
MidTech receives from swap bank

Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values in all the arrows below

MidTech Swap Bank US Bank FOREX Market