TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loan has a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more years to go. Daibochi, a Japanese plastics maker with operations in Malaysia has just negotiated a RM 5 million, 5-year loan with Maybank at 7.5% annual interest. Both companies are worried about the foreign exchange exposure. Design a currency swap that will enable both companies to manage exchange rate risk. (Assume debt servicing will be on 6-monthly basis, the spot Yen/Ringgit rate is 10 Yen/Ringgit).

TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loan has a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more years to go. Daibochi, a Japanese plastics maker with operations in Malaysia has just negotiated a RM 5 million, 5-year loan with Maybank at 7.5% annual interest. Both companies are worried about the foreign exchange exposure. Design a currency swap that will enable both companies to manage exchange rate risk. (Assume debt servicing will be on 6-monthly basis, the spot Yen/Ringgit rate is 10 Yen/Ringgit).

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 16QA

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