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

Net present value kingston inc management is considering

Net present value: Kingston, Inc. management is considering purchasing a new machine at a cost of $6,137,270. They expect this equipment to produce cash flows of $814,322, $663,275, $637,250, $1,817,112, $1,292,960, and ...

Mike riskless is considering two projects he has estimated

Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investme ...

1 describe and illustrate an integrated service provider

1. Describe and illustrate an integrated service provider. How does the concept of integrated service provider differ from traditional service providers, such as forhire transportation and warehousing? 2. Compare and con ...

1 what distinguishes a spot market from a derivatives

1. What distinguishes a spot market from a derivatives market? What distinguishes the money market from the capital market? How does the efficiency of a market affect an investor's strategy? 2. The following is an excerp ...

1 the interested student should rewrite the equations for

1. The interested student should rewrite the equations for the vertically integrated utility to show that the total revenue received from all activities is equal to the sum of all input costs, plus the sum of all capacit ...

What is the accounting identity list at least three of the

What is the accounting identity? List at least three of the assumptions underlying financial statements? Identify at least three current asset accounts ? What is the operating cycle ? Identify three current liability acc ...

1 how might land development activities be specialized why

1. How might land development activities be specialized? Why is this activity different from project development discussed in the preceding chapter? 2. What is an option contract? How is it used in land acquisition? What ...

Consider rolling a fair 6-faced die twice let a be the

Consider rolling a fair 6-faced die twice. Let A be the event that the sum of the two rolls is at most 6, and B be the event that the first one is an even number. (a) What is the probability that the sum of the two rolls ...

Locate a newspaper or magazine article that reports a

Locate a newspaper or magazine article that reports a behavioral science research project. a. Determine whether the project is a descriptive, a correlational, or an experimental research design. b. What variables are mea ...

1 what part of the federal fair housing act is applicable

1. What part of the federal Fair Housing Act is applicable to an apartment project? 2. Define net lease. 3. Why does shopping center management promote shopper-attraction activities? 4. How does a shopping center utilize ...

  • 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