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

If the calculated value of f is found to be significant for

If the calculated value of F is found to be significant for the main effect of an independent variable with more than two levels, what tests does the researcher then conduct? Why are such tests not necessary if the indep ...

Primary task responsenbspif a company grows too fast it can

Primary Task Response:  If a company grows too fast, it can find itself without access to the resources it needs to meet its obligations. If it grows too slowly, it may find itself missing strategic as well as tactical o ...

Company b just paid an annual dividend of 42 a share the

Company B just paid an annual dividend of $.42 a share. The stock is selling for $18 a share and has a growth rate of 2.2 percent. What is the dividend yield, using the constant growth model?

Name the industrywith this case a comparison is made

NAME THE INDUSTRY With this case, a comparison is made between three firms in different industries using net profit margin, total asset turnover and current ratio. 1. Apple Fiscal year 2010 ended September 25, 2010, and ...

According to the economist which tracks the big mac index

According to the Economist, which tracks the Big Mac index: The yuan is unquestionably undervalued. Our Big Mac index, based on the theory of purchasing-power parity, in which exchange rates should equalise the price of ...

Question 1is there a way to determine which type of project

Question 1 Is there a way to determine which type of project (profitable or unprofitable) we have, without waiting until the actual results for comparison? Write in 150 words withREFERENCES. Question 2 What if one uses t ...

For each of the following six scenarios say whether the

For each of the following six scenarios, say whether the value of the dollar will appreciate, depreciate, or remain the same relative to the Japanese yen. Explain each answer. Assume that exchange rates are freely floati ...

Identify general-purpose statements and communication

Identify general-purpose statements and communication objectives for several situations. Read the following situations and write a general-purpose statement and a specific communication objective-the results you want-for ...

You have been asked to evaluate the effects of a new

You have been asked to evaluate the effects of a new educational video that was developed to reduce racial prejudice among adolescents. You plan to administer a pretest measure of racial attitudes to 60 adolescent partic ...

According to an article in the wall street journal during

According to an article in the Wall Street Journal, during the last quarter of 2008, the Walt Disney Company "lost money on a fuel hedge for the company cruise line." Why would Disney want to undertake a fuel hedge? How ...

  • 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