You borrow NOK (Norwegian krone) 100m at 10 percent for seven years, and you swap the loan into NZD (New Zealand dollar) at a spot rate of NOK/NZD 4 and the seven-year swap rates of 7 percent (NZD) and 8 percent (NOK). What are the payments on the loan, on the swap, and on the combination of them? Is there a gain if you could have borrowed NZD at 9 percent? Outline the cash flows in the amount and currency of both the inflows and outflows) associated with (i) the NOK loan, (ii) the swap (fixed interest at 7% in NZD for fixed interest at 8% in NOK), and the resulting combined net cash flows. These should include the principal exchanges upfront and at maturity as well as the flows of interest over the length of the swap.
You borrow NOK (Norwegian krone) 100m at 10 percent for seven years, and you swap the loan into NZD (New Zealand dollar) at a spot rate of NOK/NZD 4 and the seven-year swap rates of 7 percent (NZD) and 8 percent (NOK).
What are the payments on the loan, on the swap, and on the combination of them?
Is there a gain if you could have borrowed NZD at 9 percent?
Outline the cash flows in the amount and currency of both the inflows and outflows) associated with
(i) the NOK loan,
(ii) the swap (fixed interest at 7% in NZD for fixed interest at 8% in NOK), and the resulting combined net cash flows.
These should include the principal exchanges upfront and at maturity as well as the flows of interest over the length of the swap.
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