Chapter 11, Problem 33QA

​(Term structure of interest rates​) If one would want to invest savings of ​$29,000 in government securities for the next 2 years.​ Currently, one can invest either in a security that pays interest of 7.6​% per year for the next 2 years or in a security that matures in 1 year but pays only 6.2 ​% interest. If one makes the latter​ choice, they would then reinvest theirr savings at the end of the first year for another year. a. Why might one choose to make the investment in the 1 ​-year security that pays an interest rate of only 6.2 ​%, as opposed to investing in the 2 ​-year security paying 7.6 ​%? Provide numerical support for your answer. Which theory of term structure have you supported in your​ answer? b. Assume your required rate of return on the​ second-year investment is 10.0 ​%; ​otherwise, you will choose to go with the 2-year security. What rationale could you offer for your​ preference? A) Why might you choose to make the investment in the 1 ​-year security that pays an…

Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 million

Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?

Honesty Company is exploring to issue a financial instrument next year. They are researching for a reasonable interest rate to offer. The financial instrument is expected to cover for 180 days. Government Treasury Bills are being offered with the following rates: 30 day – 1.5%; 60 day – 2%; 90 day – 2%; 180 day – 2.50%; and 360 day – 3%. Inflation was reported at 1.2%. Honesty must be able to safeguard at least 3% of the risk for this issuance.What is the appropriate interest rate (round off your answer to two decimal places)?

The following information is about a hypothetical government security dealer named M.P. Jorgan. Market yields are in parenthesis, and amounts are in millions.            Assets                                                               Liabilities and Equity          Cash                                                 $20           Overnight repos                    $210          1-month T-bills (7.05%)                    80             3 month CD                              70          3-month T-bills (7.25%)                    95             7-year fixed rate (8.55%)         260          2-year T-notes (7.50%)                   100             Subordinated debt          8-year T-notes (8.96%)                   200                 5-year munis (floating rate)            (8.20% reset every 6 months)       105             Equity                                     60          Total assets                                    $600         Total liabilities & equity          $600…

company will receive €75 million in 1 year from an Italian customer. observe the following data. $:€ Spot Rate $1.25:€1.00 $:€ Forward Rate $1.30:€1.00 How many USD will you receive if you employ a forward hedge

ABC Corporation wishes to raise money by selling a 90-day promissory note in the short-term money markets. The note promises to pay the holder $17,000,000 at maturity. If yields on similar risk notes are currently 2.8% p.a., how much money will ABC Corporation receive for the note?   If the purchaser of the note holds it until maturity, what is the total amount of interest they will earn? For the purchaser in 2), what will be the return on investment (ignoring taxes)? Need help answering all these please!

Required:a. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.b. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate rises to $1.40/£1 and the lira spot foreign exchange rate rises to $0.17/TL1 over the year.c. Suppose that the FI funds the $250 million U.S. loans with $250 million one-year U.S. CD at a rate of 4 percent; funds $150 equivalent British loans with $150 million equivalent one-year pound CDs at a rate of 5 percent; funds $100 million equivalent Turkish loans with $100 million equivalent one-year Turkish lira CDs at a rate of 6 percent. Assume no other changes. What will the FI’s balance sheet look like…