Question
PetCo needs 2.05 billion Mexican Peso to set up a new subsidiary there. PetCo is relatively unknown outside the USA so borrowing Peso directly in
PetCo needs 2.05 billion Mexican Peso to set up a new subsidiary there. PetCo is relatively unknown outside the USA so borrowing Peso directly in Mexico would be difficult at a good rate and need a long regulatory processing time. The current exchange rate is 20.5 PESO / $. At the current exchange rate, the US$ value of the 2.05 bill. Mexican Peso is $100 million. PetCo will issue in the U.S. $100 million of 4-year debt with semi-annual interest payments at a floating rate of LIBOR +1.6. 6-month LIBOR is presently 3.4%. PetCo is worried that the LIBOR rate will rise soon and desires locking in a fixed rate in a currency swap. PetCo contracts for a SWAP with MAXI Bank. In the Swap, MAXI will pay PetCo straight LIBOR every 6 months in exchange for PetCo paying fixed 4.40% annual rate semi-annually to MAXI
Enter answers below (show amount and currency, $ or PESO, on each answer):
1. At current Libor, PetCo each 6 months needs to come up with how much more $ besides Swap receipts to cover its US lenders debt payments e ________________
2. The LIBOR rate for the last 6 months of the Swap rose to 4.8% . The final total closing swap payment at end t=4 from MAXI to PetCo is f _______________
3. The LIBOR rate for the last 6 months of the Swap rose to 4.8%. The final total closing swap payment at end t=4 from PetCo to MAXI is g ______________
4. The LIBOR rate for the last 6 months of the Swap rose to 4.8% . The final total closing payout at end t=4 from PetCo to its original USA lenders is h___________
PLEASE SHOW STEPS FOR EACH EXAMPLE NOT SURE IF OTHER EXAMPLES ARE CORRECT
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