Question 3: (16 marks) 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 U.S.A. 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: Marks 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 U.S.A. to be used: Value in US$ to be borrowed: 1 mark 1 mark 1 mark 1 mark Swap transaction: Marks In which currency is the swap payment? e.g. in US$ 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 1 mark 1 mark 1 mark 1 mark Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values in all the arrows below: 8 marks (1 mark for each correct insertion in arrows) MidTech Swap Bank IL US Bank HUN 1 FOREX Market Question 3: (16 marks) 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 U.S.A. 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: Marks 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 U.S.A. to be used: Value in US$ to be borrowed: 1 mark 1 mark 1 mark 1 mark Swap transaction: Marks In which currency is the swap payment? e.g. in US$ 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 1 mark 1 mark 1 mark 1 mark Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values in all the arrows below: 8 marks (1 mark for each correct insertion in arrows) MidTech Swap Bank IL US Bank HUN 1 FOREX Market
