Some multinational corporations and banks run recruiting Talent Programs that offer about two years of diversified rotations in various business units. This recruiting system is a great opportunity to experience a breadth of roles across a business. Before taking over a fixed position in the marketing team, there is a rotation to the Finance Department. Particularly you were assigned to the Treasury Team, whose functions are cash management and funding. Your mentor is a seasoned senior analyst who has 7-year working experience at the Corporation ABC. She will be involved in your training and will give you feedback on the projects you will participate. 1. Depositary Institutions: Banks Commonly, corporations are clients of well-established banks. However, some small banks offer higher than average interest rates to attract deposits of big corporations. In the outbreak of the health crisis, Ocaso Bank, a small local bank manages about 3% of ABC total deposits. Your mentor requires you to analyze the recently published Balance Sheet of Ocaso Bank. The relevant Central Bank has a mandatory reserve requirement of 14 percent. Based on Ocaso Bank balance sheet, answer the following: (5 points each question; total of 10 points) a) What is the size of the required reserves of Ocaso Bank? b) If ABC decided to withdraw its $ 10 million deposits held at Ocaso bank, is the size of Ocaso's excess reserve account enough to meet the withdrawal? Liabilities & Equity Reserves $49 million Deposits S 190 million $200 million Borrowed Funds Securities $51 million Bank Capital $ 80 million $300 million Total Liabilities & Equity Assets Loans $ 30 million Total Assets $ 300 million 2. Zero-coupon Bonds: For now, Corporation ABC has managed to maintain a decent revenue stream during lockdown because 70% of its revenue comes from a business line that sells necessity products directly through supermarkets and online. Hence ABC still has some surplus of cash which is ready to invest. Your mentor considers that ABC surplus cash must be invested in zero-coupon bonds. Find below the secondary market rates of US Treasury Bills (T-Bills) of 3-month and 1-year. The graph below also depicts the Federal Funds rates. FRED-alunes target mange upper - 3 Monthsary Secondary Marbella 1 Year Trowary Secondary Market Rale 15 12015 2017 2018 Jan 2010 2010 Shaded areas in US TO Source Board of Governors of the Federal Reserve System (US) fredstilled org (5 points each question; total of 20 points) a) As of June 2019, which of these T-bills had a higher price? Which was the Term Premium? b) Is there a relationship between the Term structure of the T-Bills rates and the Fed Funds rate? c) Today, a T-Bill with a tenure of 3-month pays 0.10% and that of 1-year pays 0.15% (both interest rates are per year). Calculate the price of both Treasury Bills. d) Imagine that ABC could only invest in these two T-bills. ABC also expects that its revenues might decrease as future economic recovery might take longer than expected. Which T-bill should ABC Corporation Buy? 3. Measuring the Level of the Stock Market: The senior analyst suggested that you follow equity markets closely because ABC's Board has decided to pay a dividend, despite many local corporations has decided not to pay dividends at all. A competing firm, BIC has announced that will not pay any dividends for the next 2 years. In year 3, BIC's dividend will be of $ 0.5 with a stable dividend growth rate of 3% thereafter (constant-growth). (10 points each question; total of 30 points) a) ABC company is listed in NYSE; however, it is not within the constituents of the Dow Jones Industrial Average (DJIA). Would you follow the S&P 500 index or the DJIA? Explain your answer b) Based on BIC's dividend policy for the next years, which is the stock fair price if your required rate is 6%? c) If BIC'stock market price is $ 18, would you BUY or SELL the stock? 4. Foreign Exchange Market: By the end of your rotation, you were involved in some foreign exchange transactions done with clients in United Kingdom. ABC expects to receive GBP 1 million in six months, and it has agreed a forward contract to exchange the pounds for dollars. At the inception of the contract the spot exchange rate was of USD 1.2486 per GBP and the contract stipulates that the forward exchange rate is USD 1.2391 per GBP. How many dollars will ABC get in six months? (10 points) Some multinational corporations and banks run recruiting Talent Programs that offer about two years of diversified rotations in various business units. This recruiting system is a great opportunity to experience a breadth of roles across a business. Before taking over a fixed position in the marketing team, there is a rotation to the Finance Department. Particularly you were assigned to the Treasury Team, whose functions are cash management and funding. Your mentor is a seasoned senior analyst who has 7-year working experience at the Corporation ABC. She will be involved in your training and will give you feedback on the projects you will participate. 1. Depositary Institutions: Banks Commonly, corporations are clients of well-established banks. However, some small banks offer higher than average interest rates to attract deposits of big corporations. In the outbreak of the health crisis, Ocaso Bank, a small local bank manages about 3% of ABC total deposits. Your mentor requires you to analyze the recently published Balance Sheet of Ocaso Bank. The relevant Central Bank has a mandatory reserve requirement of 14 percent. Based on Ocaso Bank balance sheet, answer the following: (5 points each question; total of 10 points) a) What is the size of the required reserves of Ocaso Bank? b) If ABC decided to withdraw its $ 10 million deposits held at Ocaso bank, is the size of Ocaso's excess reserve account enough to meet the withdrawal? Liabilities & Equity Reserves $49 million Deposits S 190 million $200 million Borrowed Funds Securities $51 million Bank Capital $ 80 million $300 million Total Liabilities & Equity Assets Loans $ 30 million Total Assets $ 300 million 2. Zero-coupon Bonds: For now, Corporation ABC has managed to maintain a decent revenue stream during lockdown because 70% of its revenue comes from a business line that sells necessity products directly through supermarkets and online. Hence ABC still has some surplus of cash which is ready to invest. Your mentor considers that ABC surplus cash must be invested in zero-coupon bonds. Find below the secondary market rates of US Treasury Bills (T-Bills) of 3-month and 1-year. The graph below also depicts the Federal Funds rates. FRED-alunes target mange upper - 3 Monthsary Secondary Marbella 1 Year Trowary Secondary Market Rale 15 12015 2017 2018 Jan 2010 2010 Shaded areas in US TO Source Board of Governors of the Federal Reserve System (US) fredstilled org (5 points each question; total of 20 points) a) As of June 2019, which of these T-bills had a higher price? Which was the Term Premium? b) Is there a relationship between the Term structure of the T-Bills rates and the Fed Funds rate? c) Today, a T-Bill with a tenure of 3-month pays 0.10% and that of 1-year pays 0.15% (both interest rates are per year). Calculate the price of both Treasury Bills. d) Imagine that ABC could only invest in these two T-bills. ABC also expects that its revenues might decrease as future economic recovery might take longer than expected. Which T-bill should ABC Corporation Buy? 3. Measuring the Level of the Stock Market: The senior analyst suggested that you follow equity markets closely because ABC's Board has decided to pay a dividend, despite many local corporations has decided not to pay dividends at all. A competing firm, BIC has announced that will not pay any dividends for the next 2 years. In year 3, BIC's dividend will be of $ 0.5 with a stable dividend growth rate of 3% thereafter (constant-growth). (10 points each question; total of 30 points) a) ABC company is listed in NYSE; however, it is not within the constituents of the Dow Jones Industrial Average (DJIA). Would you follow the S&P 500 index or the DJIA? Explain your answer b) Based on BIC's dividend policy for the next years, which is the stock fair price if your required rate is 6%? c) If BIC'stock market price is $ 18, would you BUY or SELL the stock? 4. Foreign Exchange Market: By the end of your rotation, you were involved in some foreign exchange transactions done with clients in United Kingdom. ABC expects to receive GBP 1 million in six months, and it has agreed a forward contract to exchange the pounds for dollars. At the inception of the contract the spot exchange rate was of USD 1.2486 per GBP and the contract stipulates that the forward exchange rate is USD 1.2391 per GBP. How many dollars will ABC get in six months? (10 points)