Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Suppose a Swiss firm, SandyCom Ltd, wants  to invest in the U.S. The Swiss firm needs US dollars with a term to maturity of 5 years against a fixed interest rate. However, the Swiss firm is not very well known in the US market, though it is relatively well known in the SFr market. The difference in name recognition is reflected in the interest rate cost of SFr borrowing (9%) and the interest rate costs $ borrowing (11%).
 
A US firm, Kseven Int., needs SFr financing with a term to maturity of five years against a fixed interest rate. The US firm is not well known in the SFr market, but well known in the $Market. Again the difference in name recognition is reflected in the interest rate cost of SFr borrowing of 9.8% and the interest rate costs of $ borrowing 10.5%.

problem 1: Show that, without an intermediary, there is a potential gain of 1.3% that exists from a swap transaction.
 
problem 2: You are needed to devise a currency swap which would permit each firm to benefit from borrowing cost savings. It was agreed that the Swiss firm would receive 0.5% and the US firm 0.8% of the total 1.3% potential gain. Describe carefully the steps and make clear any suppositions.

problem 3: Supposing, as an intermediary, you will charge a fee for arranging the swap. Show the fee charged would influence the potential gain. The fee will be shared by each firm equally. You can suppose any suitable fee.

problem 4: Are there any risks comprised in such a transaction? 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M95894

Have any Question? 


Related Questions in Basic Finance

1 why review the disclosure of allowance for loan losses

1. Why review the disclosure of allowance for loan losses for a bank? 2. Why review the disclosure of nonperforming assets for banks? 3. Why could a review of savings deposit balances be important when reviewing a bank's ...

Diamond toasterscost classificationdirect materials

Diamond Toasters Cost Classification Direct materials used 189,000 Property taxes, factory buiilding 27,000 Depreciation, factory building 54,000 Lease cost, factory equipment 63,000 Administraive office salaries 72,000 ...

Final project - fire 650refer to the template spreadsheet

Final Project - FIRE 650 Refer to the template spreadsheet provided.  Stock A has an annualized volatility equal to 18% for which you have just written an out-of-the-money 26 week call option.  The risk free rate is 2% p ...

1 devise a local search heuristic for the service network

1. Devise a local search heuristic for the service network design problem in which an individual move is to remove an existing arc or to add a new arc to the current solution. 2. Show that the deterministic VAP with mult ...

1 describe the process of financing the construction and

1. Describe the process of financing the construction and operation of a typical real estate development. Indicate the order in which lenders who fund project development financing are sought and why this pattern is foll ...

What distinguishes indebtedness and equity is preferred

What distinguishes indebtedness and equity? Is preferred stock a debt or equity instrument? Explain ? How does a mutual fund perform its function as a financial intermediary? What is meant by the term "maturity intermedi ...

The president of fly-by-night airlines has asked you to

The president of Fly-by-Night Airlines has asked you to evaluate the proposed acquisition of a new jet. The jet's price is $40 million, and it is classified in the 10-year MACRS class. The purchase of the jet would requi ...

1 what information is contained in each of the

1. What information is contained in each of the supplementary sections of the research report? 2. How are the levels of the headings of a research report determined? 3. Summarize the writing and stylistic goals that can ...

List two advantages from the investor point of view of an

List two advantages, from the investor point of view, of an exchange traded fund, vis-a-vis a closed-end fund? Distinguish between a defined benefit pension plan and a defined contribution plan? List at least three funct ...

An investment costs 875000 today and is expected to produce

An investment costs $875,000 today and is expected to produce a one-time inflow at the end of year 8 of $1,430,000. What is the IRR of this project?

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen