how much BP has to pay? A plain vanilla interest swap has just been arranged between Muscat Electric Company and British Petroleum. Interest willbe calculated on a semi-annual basis.Muscat Electric Company needs a Euro loan to buy equipment for its new project. The loan is required for syears andamount is 5 million Euros. Muscat Electric is interested in fixed rate loan. Muscat electric agreed to pay 12% per year.British Petroleum operates in Oman. BP needs a 5year 5 million Euro Loan. BP wants floating rate funds. BP agreed topay LIBOR+1%.The start date of the swap is 1st Jan 2019. Assume 30/360YearLibor RateObservedhst Jan 20191%hst June 201912.00%hst Jan 202013.00%

LIBOR: It is a benchmark for interest rates at which many international banks lend to one another…

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how much BP has to pay?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Newstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro. How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer) A. 565,545 USD. B. 554,510 USD. C. 562,786 USD. D. 576,912 USD.
Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year.
4. Portland Ltd, an Australian firm, needs AUD10 million to finance a new project in USA. The company has the capacity to borrow either from an Australian bank which offers 7% (AUD loan) annual interest rate or from a USA bank which offers 6% (USD loan) annual interest rate. The loan expects to settle after one year period. You found following additional information: The current spot is USD1.0654/AUD One year forward rate is USD1.0455/AUD. Required: Recommend the loan which provides better off to the company.
Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,400,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. What is the present value of the benefit of the concessionary loan?
Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,950,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Present value of the benefit of the concessionary loan = ?
An American firm wants to borrow 100 million USD for 1 year to fund a capital investment project. The firm can borrow the money from a U.S. bank at an interest rate of 6%. Alternatively, the firm could borrow British pounds at a rate of 3% a year. At the end of the year, the firm would pay back the loan and interest. The initial exchange rate is 1 GBP = 2 USD. If at the end of the year the exchange rate changes from 1 GBP = 2 USD to 1 GBP = 3 USD, what was the actual cost of borrowing (effective interest rate) if the American firm chose to obtain the loan in British pounds?
BIDV can borrow either AUD10 million or $5 million. The current spot rate of the AUD is $0.48 and AUD will increase to $0.5 in the next 5 days. Furthermore, BIDV expects the spot rate of the euro to be $1.10 in 90 days. Today, U.S. Dollar ($) lending rate is 7.10% and borrowing rate is 7.50%. On the other hand, AUD lending rate is 6.80% and borrowing rate is 7.25%. If BIDV's forecast is correct, what will its dollar profit be from speculation over the five-day period? (assuming it does not use any of its existing consumer deposits to capitalize on its expectations) (Write down the number only, no currency symbol, round up to 0 decimal number, assume that 1 year has 360 days)
Required: Zeda Incorporated, a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK14,750,000 at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK 5.60 per $1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Note: Round the exchange rates to two decimal places. Round the intermediate calculations and final answer to nearest whole number. Present value of the benefit of the concessionary loan
Required: Zeda Incorporated, a U.S. MNC, is considering making a fixed direct Investment In Denmark. The Danish government has offered Zeda a concessionary loan of DKK14,150,000 at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual Installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK 5.60 per $1.00 and the expected inflation rate is 3 percent In the United States and 2.5 percent in Denmark. Note: Round the exchange rates to two decimal places. Round the Intermediate calculations and final answer to nearest whole number. Answer is complete but not entirely correct. Present value of the benefit of the concessionary loan S 850,918
Required: Zeda Incorporated, a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK14,000,000 at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK 5.60 per $1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Note: Round the exchange rates to two decimal places. Round the intermediate calculations and final answer to nearest whole number.
BK Inc. has $100,000 that can be used for arbitrage in the forex market. The interest rate is US is 4% and in Europe is 5%. The current exchange rate USD to EUR is 0.87. The company expects that after a year, the exchange rate may not be favourable and executes a forward contract at EUR to USD 1.23. Calculate the net profit or loss of this covered interest arbitrage if the investment is made in Europe. Answer Choices: a. The net profit is $8,360.50 The net loss is $4,000.00 b. c. The net profit is $5,360.50 d. The net loss is $1,000.00
Yankee Company Ltd is a US. based company that has plans to borrow EUR 10 million to fund increased working capital to boost sales of is product in Europe. The company expects Euro interest rates lo rise so it enters into a 3X9 Forward Rate Agreement (FRA) to lock in the interest rate it will pay on is Euro borrowing. The current borrowing rate on the contract date is 3.5%. The borrowing rate on the settlement date rises to 3.8% Required: a) Calculate the amount that Yankee Co needs to pay lo settle the FRA on the settlement date b) Yankee Co management subsequently decides to extend its Euro borrowings for a year as its increased working capital in Europe has increased sales and profits. Yankee's main bank which funds its European operations offers it a one-year loan of Euro 10 million at a floating rate of interest of one-year Euro Interbank Offered Rate (Euribor) plus 3.5%. Yankee Co prefers to pay a Bred rate of 3 25%. It enters into a swap agreement with a counter-party to…

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