Treasurer’s Break-even Forward Rate of Interest Assignment Help With Solution

Treasurer’s Break-even Forward Rate of Interest Assignment Help

 
1.The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 6.73% and has lent funds for 6 months at 7.87%. The total amount is USD38 million. To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD38 million for months, in 3 months’ time, and hedge the position now with an FRA. The market has the following quotes from three dealers:
 

BANK A3×66.92-83
BANK B3×66.87-78
BANK C3×66.89-80

 
a. What is (are) the exposure(s) of this treasurer? Represent the result on cash flow diagrams.
 
b. Calculate this treasurer’s break-even forward rate of interest, assuming no other costs.
 
c. What is the best FRA rate offered to this treasurer?
 
d. Calculate the settlement amount that would be received (paid) by the treasurer if, on the settlement date, the LIBOR fixing was 6.09%.
 
 
2.Globalcorp makes a sale of goods to a foreign firm and will receive FC 380,000 three months later. Globalcorp has incurred costs in dollars and wishes to make definite the amount of dollars it will receive in three months. It plans to approach a foreign bank to borrow an amount of local currency such that the principal plus interest will equal the amount Globalcorp expects to receive. The interest rate it must pay on its loan is 28%. With the borrowed funds, Globalcorp purchases dollars at the current spot rate that are invested in the United States at an interest rate of 8%. When Globalcorp receives the FC 380,000 at the end of three months, it uses the funds to liquidate the loan at the foreign bank. The effective tax rate in both countries is 40%.
 
a) What is the net amount that Globalcorp will receive if the current spot rate is FC 1.90 to the dollar?
 
b) How much less is this than the amount Globalcorp would have received if the remittance had been made immediately instead of three months later?
 
c) At what forward rate of exchange would the amount received by Globalcorp have been the same as that it would have obtained using the capital markets? Would Globalcorp have sold the FC forward short or long to hedge its position?
 
d) If a speculator took the opposite position from Globalcorp in the forward market for FC, would the speculator sell long or short? If the speculator received a risk premium for holding this position, would this place the current forward rate in FC above or below the expected future spot rate in FC per dollar?
 
 

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention Case Id mentioned in end of every Q&A Page. You can also send us your details through our email id support@assignmentconsultancy.com with Case Id in the email body. Case Id is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to Case Id . The date is asked to provide deadline.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id assignmentconsultancy.help@gmail.com and support@assignmentconcultancy.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.

Case Approach

Scientific Methodology

We use best scientific approach to solve case study as recommended and designed by best professors and experts in the World. The approach followed by our experts are given below:

Defining Problem

The first step in solving any case study analysis is to define its problem carefully. In order to do this step, our experts read the case two three times so as to define problem carefully and accurately. This step acts as a base and help in building the structure in next steps.

Structure Definition

The second step is to define structure to solve the case. Different cases has different requirements and so as the structure. Our experts understand this and follow student;s university guidelines to come out with best structure so that student will receive best mark for the same.

Research and Analysis

This is the most important step which actually defines the strength of any case analysis. In order to provide best case analysis, our experts not only refer case materials but also outside materials if required to come out with best analysis for the case.

Conclusion & Recommendations

A weak conclusion or recommendations spoil the entire case analysis. Our expert know this and always provide good chunks of volume for this part so that instructors will see the effort put by students in arriving at solution so as to provide best mark.

Related Services


 
 
3.Transcorp has made a purchase of goods from a foreign firm that will require the payment of FC 380,000 six months later. Transcorp wishes to make definite the amount of dollars it will need to pay the FC 380,000 on the due date. The foreign firm is domiciled in a country whose currency has been rising in relation to the dollar in recent years. The tax rate in both countries is 40%. Transcorp plans to borrow an amount in dollars from a U.S. bank to immediately exchange into FCs to buy securities in the foreign country, which, with interest, will equal FC 380,000 six months later. The interest rate that will be paid in the United States is 12%; the interest rate that will be earned on the foreign securities is 8%. When at the end of six months Transcorp is required to make the payment in FC, it will use the funds from the maturing foreign securities in FC to meet its obligation in FC. At the same time it will pay off the loan plus interest in the United States in dollars.
 
a) What is the net amount that Transcorp pays to meet the obligation of FC 380,000 in six months if the current spot rate is FC 2.00 to the dollar?
 
b) How much more is this than the amount Transcorp would have paid if payment had been made immediately instead of six months later?
 
c) At what forward rate of exchange would the amount paid by Transcorp have been the same as that it would have paid using the capital markets? Would Transcorp have taken the long position in the forward FC or have sold the FC forward short to hedge its position?
 
d) If a speculator took the opposite position from Transcorp in the forward market for FCs, would the speculator be long or short? If the speculator received a risk premium for holding this position, would this place the current forward rate in FC above or below the expected future spot rate in FC per dollar?
 
 
4.(a) The following options are quoted at the market:
 

OptionExpirationStrike PricePremium
Call1 MonthRs.48.5/$Rs.0.30
Put1MonthRs.48.5/$Rs.0.05

 
A trader is looking at the above options and planning to adopt long strip or long strap strategy to make profit from the rupee-dollar exchange rate volatility.
 
You are required to:
 
I. Show the pay off profile and indicate break even points for strip and strap strategies in a price range of Rs 47- Rs 50 for a dollar.
II. Comment on the desirability of the above two option strategies.
 
(b)Consider a call option on a stock with the following parameters
 
Stock price: Rs210
Strike Price: Rs 220
Time to expiration: 167 days
Risk free interest rate: 10 %
Variance of annual stock returns: 20%
Compute price of the call option.
 
 
5.From the undermentioned facts determine the cost of equity shares of company X
 
(i)Current market price of a share $150.00
(ii)Cost of flotation per share on new shares $3.00
(iii)Dividend paid on the outstanding shares over the past six years.
 

YEARDIVIDEND PER SHARE
110.50
211.02
311.58
412.16
512.76
613.40

 
(iv)Assume a fixed didvidend pay out ratio.
(v)Expected dividend on the new shares at the end of the current year is $14.10 per share.
 
 

Product Code: Fin-sol-10

 
Looking for treasurer’s Break-even Forward Rate of Interest Assignment Help , please submit your details here with product code mentioned above.

Summary