Essay on Gaz de France

676 WordsFeb 2, 20063 Pages
Gaz De France 1&2) In my opinion, Mr. Reboul did an excellent job with liability management so far. He and his staff successfully hedged GDF's foreign debt and in that process were actually able to made profits which contributed to net income. Currency swaps allow companies to exploit the global capital markets more efficiently. They are an integral arbitrage link between the interest rates of different developed countries. Companies have to come up with the funds to deliver the notional at the end of the contract. They are obliged to exchange one currency's notional against the other currencies notional at a fixed rate. The more actual market rates have deviated from this contracted rate, the greater the potential loss or gain.…show more content…
In my opinion, that is where GDF realized 1B profit in 1985. As per data from the case, USD significantly depreciated against FF from 1985 until first quarter of 1986 (9.9502FF/USD at the beginning of 1985 to 7.2036FF/USD in 1st quarter of 1986), 3) Remaining life on swap = 5 years Notional principal = US$100m; FF500m Swap 8% US$ for 10% FF (compounded annually) Five exchanges left on the swap The current exchange rate is 5FF/USD Swap in years 1-4: US$8m for FF50m Swap in year 5: US$108m for FF550m Value of US$ payments = 8 (1.08)^-1+ 8(1.08)^-2+ 8(1.08)^-3+ 8(1.08)+108(1.08)^-5= 100m Value of FF payments =50(1.1)^-1+ 50(1.1)^-2+ 50(1.1)^-3 +50(1.1)^-4+550(1.1)^-5= 500m FF value of payments in US$ = 5*100=500 Value of swap to the FF party = 500-500= 0 4) Remaining life on swap = 4 years Notional principal = US$100m; FF500m Swap 8% US$ for 10% FF (compounded annually) Four exchanges left on the swap Currently US$ (FF) rates are at 6% (9%). The current exchange rate is 10FF/USD Swap in years 2-4: US$8m for FF50m Swap in year 5: US$108m for FF550m Value of US$ payments = 8 (1.06)^-1+ 8(1.06)^-2+ 8(1.06)^-3+ 108(1.06)^-4= 106.93m Value of FF payments =50(1.09)^-1+ 50(1.09)^-2+ 50(1.09)^-3 +550(1.09)^-4= 516.19m FF value of payments in US$ = 10*106.93=1069.3m Value of swap to the FF party = 516.19-1069.3= -553.11 The change associated with interest rate change is

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