Exchange rates: $/JPY $/Won $/CAD $/GPD $/AU$ $/ZAR Current borrowing interest rates on loans: USA Japan South Korea Canada UK Australia South Africa Spot Bid Ask 0.0094 0.0095 0.0006 0.0008 0.7614 0.7616 1.3034 1.3038 0.7225 0.7226 0.0606 0.0607 Fixed Libor 0.640% 0.130% 0.525% 0.015% 1.164% 0.654% 0.666% 0.156% 0.577% 0.067% 0.612% 0.102% 5.045% 4.535% BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE $ Yen Won CAD$ GPD AU$ ZAR Years Bid% 1 2 3 4 Ask% Bid% Ask% Bid % Ask% Bid % Ask% Bid% Ask% 0.630 0.650 0.515 0.535 | 1.154 1.174 0.656 0.676 0.567 0.587 0.640 0.660 0.525 0.545 1.164 1.184 0.666 0.686 0.577 0.597 0.612 0.650 0.670 | 0.535 0.555 1.174 1.194 0.676 0.696 0.587 0.607 0.622 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 Bid % Ask% Bid% Ask% 0.602 0.622 | 5.035 5.055 0.632 5.045 5.065 0.642 5.055 5.075 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: 500,000 63,000,000 Period of time that the components can be paid (in 3 years) Number of payments per year Amount of each payment: 4 5,250,000 Workings: Calculation of the notional principal of the hedge in Japanese yen: Provide your answers in the cells below Payments to be conducted by HighTech subsidiary in the U.K. How often? Monthly = 12/ Quarterly = 4/Semi-annual = 2 Swap bank Yen bid rate Therefore, notional Yen principal calculated with information above Calculation of the notional principal of the hedge in British pounds: Spot exchange rate $/Yen ask rate Spot exchange rate $/GBP bid rate Therefore, British pound notional principal calculated with information above. Swap bank 3 year GBP ask rate U.K. subsidiary pays quarterly: GBP/Yen Exchange rate locked in for three years: Provide your answers in the cells below Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values below: (6 marks) Japanese exporter Notional Yen swap principal Yen notional principal = Swap bank UK subsidiary Notional GBP swap principal GBP notional principal =