Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem: Ashton Bishop is the debt manager for World Telephone, which needs €3.33 billion Euro financing for its operations.  Bishop is considering the choice between issuance of debt denominated in:

               Euros (€), or

               United State dollars, accompanied by a combined interest rate and currency swap.

Describe one risk World would suppose by entering into the combined interest rate and currency swap.

Bishop believes that issuing the United State dollar debt & entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the UNITED STATE dollar payments for Euro payments throughout the maturity of the debt. She supposes a constant currency exchange rate throughout the tenor of the swap.

Exhibit 1 gives details for the two alternative debt issues. Exhibit 2 provides current information about spot currency exchange rates and the three (3) year tenor Euro/UNITED STATE Dollar currency and interest rate swap.

Exhibit 1

World Telephone Debt Details

Characteristic

Euro Currency Debt

UNITED STATE Dollar Currency Debt

Par value

€3.33 billion

$3 billion

Term to maturity

3 years

3 years

Fixed interest rate

6.25%

7.75%

Interest payment

Annual

Annual

Exhibit 2

Currency Exchange Rate and Swap Information

Spot currency exchange rate

$0.90 per Euro ($0.90/€1.00)

3-year tenor Euro/UNITED STATE Dollar fixed interest rates

  5.80% Euro/7.30% UNITED STATE Dollar

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920394

Have any Question? 


Related Questions in Basic Finance

Read one practical article of how psychology affects

Read one practical article of how psychology affects spending behavior. Easily retrieve possible articles by doing an online search using the terms "psychology" and "spending." Summarize the main points of the article.

Why do you suppose countries impose foreign exchange

Why do you suppose countries impose foreign exchange controls? Do you think that, long-term, foreign exchange controls will encourage or discourage inward foreign investment?

Assume that on 1 november the spot rate of the poundus was

Assume that, on 1 November, the spot rate of the £/US$ was $1.58 and the price on a December futures contract was $1.59. Assume that the pound depreciates over November, so that by 30 November it is worth $1.51. (a) What ...

Write a questionnaire about a new storeassume that you have

Write a questionnaire about a new store. Assume that you have been asked to write a report on the feasibility of opening a packaging and shipping store, such as a UPS Store, in your town. Because students at your school ...

A random sample of the birth weights of 186 babies has a

A random sample of the birth weights of 186 babies has a mean of 3103 g and a standard deviation of 691 g. Construct a 98% confidence interval estimate of the mean birth weight for all such babies. What is the confidence ...

1 based on the following information construct a

1. Based on the following information, construct a traditional financial institution balance sheet AND a balance sheet including off-balance sheet items. Market value of assets = 200                                      ...

1 describe how structural equations modeling works2

1. Describe how structural equations modeling works. 2. Distinguish between latent variable modeling and path analysis as types of structural equations modeling.

Suppose someone offers you the following gamble you pay 7

Suppose someone offers you the following gamble: You pay $7 and toss a coin. If the coin comes up heads, he pays you $10, and if tails comes up, he pays you $5. You in turn get the idea of offering another person a coin ...

Assume the time from acceptance to maturity on a 2000000

Assume the time from acceptance to maturity on a $2000,000 banker's acceptance is 90 days. Further assume that the importing bank's acceptance commission is 1.25 percent and that the market rate for 90 dya b/a's is 7%. D ...

1 what general rule can be developed concerning maximum

1. What general rule can be developed concerning maximum values and compounding intervals within a year? 2. What does the time value of money (TVM) mean? 3. How does discounting, as used in determining present value, rel ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro