Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A Canadian aluminum firm imports 100,000 tons of Bauxite from Australia every three months. The bauxite is an input for the firm's aluminum cans production.

image text in transcribed
A Canadian aluminum firm imports 100,000 tons of Bauxite from Australia every three months. The bauxite is an input for the firm's aluminum cans production. The bauxite price in the world market is quoted in USD and it has been fluctuating between USD25/ton to USD30/ton. The Canadian firm wants to fix its cost of this input in Canadian dollars, CAD. It faces the following quotes from three different swap dealers: All the quoted rates are simple annual rates. All the swaps are for 20 quarters ( 5 years). All payments are quartely payments. The current exchange rate is: USD0.8600/CAD The Canadian firm will swap its floating Bauxite payments for fixed USD payments with COMM. SD1; then swap its fixed USD payments for floating USD paymnets with IR SD2 and then swap its floating USD payments for fixed CAD payments with FORX SD3. Describe all these swaps, calculating the notional amounts and the cashflows. Explain the end result of the swaps as far as the Canadian aluminum firm is concerened

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Money Markets Handbook A Practitioners Guide

Authors: Moorad Choudhry

1st Edition

0470821507, 978-0470821503

More Books

Students also viewed these Finance questions

Question

Multiply: x+3 x2-81 3x-27 3x+9

Answered: 1 week ago

Question

6. Are my sources reliable?

Answered: 1 week ago

Question

5. Are my sources compelling?

Answered: 1 week ago