Calculate interest and swap payments

Assignment Help Financial Management

Reference no: EM131260540

Question 1. Sallie Schnudel trades currencies for Keystone Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/s$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the US dollar will depreciate versus the Singapore dollar in the coming 90 days, probably by 16%. She has the following options on the Singapore dollar to choose from:

Option Strike Price Premium

Put on Sing $ $0.6500/S$ $0.00003/S$

Call on Sing $ $0.6500/S$ $0.00046/S$

Option Strike Price Premium
Put on Sing $ $0.6500/S$ $0.00003/S$
Call on Sing $ $0.6500/S$ $0.00046/S$

a. Should Sallie buy a put on Singapore dollars or a call on Singapore dollars?

b. What is Sallie's breakeven price on the option position in part (a)?

c. Using your answer from part (a), what is Sallie's gross profit and net profit if the spot rate at the end of 90 days is indeed as same as Sallie expected

d. Using your answer from part (a), what is Sallie's gross profit and net profit if U.S. dollar depreciates by 25% against Singapore dollar at the end of 90 days?

Question 2. Christoph Hoffman trades currency for Blade Capital of Geneva. Christoph has $10 million to begin with, and he must state all profits at the end of any speculation in U.S. dollars. The spot rate on the euro is $1.3358/€, while the 30-day forward margin is $1.3350/€.

a. If Christoph believes the euro will continue to rise in value against the U.S. dollar, so that he expects the spot rate to be $1.3600/€ at the end of 30 days, what should he do?

b. If Christoph believes the euro will depreciate in value against the U.S. dollar, so that he expects the spot rate to be $1.2800/€ at the end of 30 days, what should he do?

Question 3. ABC Resources Ltd entered into a three-year cross currency interest rate swap to receive U.S. dollars and pay Swiss francs. Original spot exchange rate was SFr.1.5/$. Original 3-year swap rates are 2.01%-2.09% for US dollars and 1.86%-1.99% for Swiss Franc. One year later, the exchange rates is expected to change to SFr.1.5560/$. US dollars and Swiss Franc interest rates after one year will be 1.75% and 2.15% respectively. Notional principal is US$10m.

a. Calculate interest and swap payments during three year period

b. If ABC decides to unwind the swap agreement after one year, what would be the outcome of the decision? Support your answer with calculations.

Reference no: EM131260540

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