Hi,

I need assistance with below questions:

Question

Which of the following is an unlikely reason for firms to participate in the swap market?

Selected Answer:

Answers:

A.

To replace cash flows scheduled in an undesired currency with cash flows in a desired currency.

B.

Firms may raise capital in one currency but desire to repay it in another currency.

C.

Firms desire to swap fixed and variable payment or receipt of funds.

D.

All of the above are likely reasons for a firm to enter the swap market.

Question

A firm enters into an agreement to ________ British pounds and ________ U.S. dollars. If the dollar appreciates vs. the pound the firm will realize an accounting profit on the swap

Answers:

A.

pay; receive

B.

receive; pay

C.

pay; pay

D.

receive; receive

Question

A firm enters into a swap agreement to pay euros and receive U.S. dollars. If the euro appreciates the firm will record a loss on the swap for accounting purposes.

Selected Answer:

Answers:

True

False

Question

A firm entering into a currency or interest rate swap agreement retains ultimate responsibility for the timely servicing of its own debt obligations.

Selected Answer:

Answers:

True

False

Question

Use the "Upload File" button below to upload an Excel spreadsheet that shows all your work with step-by-step explanations. Make sure your final answer is clearly identified.

Use the information for NorthPole Corporation to answer following questions.

NorthPole is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%.

a) What is the all-in-cost (i.e., the internal rate of return) of theNorthPoleloan including the LIBOR rate, fixed spread and upfront fee?

b) What portion of the cost of the loan is at risk of changing?

c) If the LIBOR rate jumps to 5.00% after the first year what will be the all-in-cost (i.e., the internal rate of return) forNorthPolefor the entire loan?

d) If the LIBOR rate falls to 3.00% after the first year what will be the all-in-cost (i.e., the internal rate of return) forNorthPolefor the entire loan?