Evaluation of transaction and currency swapsin may 1988

Assignment Help Corporate Finance

Reference no: EM13357003

Evaluation of Transaction and currency swaps.

In May 1988, Walt Disney Productions sold to Japanese investors a 20 year stream of projected yen royalties from Tokyo Disneyland. The present value of that stream of royalties, discounted at 6% (the return required by the Japanese investors), was ¥93 billion. Disney took the yen proceeds, converted them to dollars, and invested the dollars in bonds yielding 10%. According to Disney's CFO, "In effect, we got money at a 6% discount rate, reinvested it at 10%, and hedged our royalty stream against yen fluctuations - all in one transaction."

a. At the time of the sale, the exchange rate was 124 = $1. What dollar amount did Disney realize from the sale of its yen proceeds?

b. Demonstrate the equivalence between Disney's transaction and a currency swap. (Hint: a diagram would help)

c. Did Disney achieve the equivalent of a free lunch through its transaction?

Reference no: EM13357003

Questions Cloud

Preparation of monthly income and expense plan and analysis : preparation of monthly income and expense plan and analysis of financial positiondonna and sherman terrel are preparing

International finance multiple choice questions1nbspnbsp : international finance multiple choice questions1.nbspnbsp companies typically want to participate in foreign direct

Evaluation of foreign currency exposure due to changes in : evaluation of foreign currency exposure due to changes in currency rates.suppose you are a british venture capitalist

Evaluation of foreign currency exposure due to changes in : evaluation of foreign currency exposure due to changes in currency rates.rolls-royce the british jet engine

Evaluation of transaction and currency swapsin may 1988 : evaluation of transaction and currency swaps.in may 1988 walt disney productions sold to japanese investors a 20 year

Computation of loss due to foreign currency exposurezapata : computation of loss due to foreign currency exposure.zapata auto parts the mexican affiliate of american diversified

International finance requires calculation of swap and loan : international finance requires calculation of swap and loan amount for euros with given exchange ratesmayo corp. plans

Determining stock price of various scripsusing the wsj or : determining stock price of various scrips.using the wsj or ibd look up the following stocks general electric general

Theory question based on common stock dividend yield and : theory question based on common stock dividend yield and capital gain.if you bought a share of common stock you would

User Account

All Pages