What is the cost to the financial institution

Assignment Help Business Economics
Reference no: EM13978743

A financial institution has entered into a 10-year currency swap with company Y. Under the terms of the swap, the financial institution receives interest at 3% per annum in Swiss francs and pays interest at 8% per annum in U.S. dollars. Interest payments are exchanged once a year. The principal amounts are 7 million dollars and 10 million francs. Suppose that company Y declares bankruptcy at the end of year 6, when the exchange rate is $0.80 per franc. What is the cost to the financial institution? Assume that, at the end of year 6, the interest rate is 3% per annum in Swiss francs and 8% per annum in U.S. dollars for all maturities. All interest rates are quoted with annual compounding. Explain.

Reference no: EM13978743

Questions Cloud

Allocated to nall preferred stock : On July 1, 2014, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $130,000. At this date Nall's common stock was selling for $24 per share and the convertible pr..
Why a foreign acquisition may backfire : Why a Foreign Acquisition May Backfire. Provide two reasons why an MNC’s strategy of acquiring a foreign target will backfire. That is, explain why the acquisition might result in a negative NPV.
Find the future value at the end of the deposit period : For each of the following cases, find the future value at the end of the deposit period at the given nominal interest rate. For the following mixed stream of cash flows, determine the future value at the end of the final year if deposits are made at ..
Estimate the LIBOR zero rates for maturities : The LIBOR zero curve is flat at 5% (continuously compounded) out to 1.5 years. Swap rates for 2- and 3-year semiannual pay swaps are 5.4% and 5.6%, respectively. Estimate the LIBOR zero rates for maturities of 2.0, 2.5, and 3.0 years. (Assume that th..
What is the cost to the financial institution : A financial institution has entered into a 10-year currency swap with company Y. Under the terms of the swap, the financial institution receives interest at 3% per annum in Swiss francs and pays interest at 8% per annum in U.S. dollars. Interest paym..
Informal presentation on the eco-philosophy : Make an informal presentation on the eco-philosophy reading by author Barry Commoner, "The Closing Circle". We will "circle up" the chairs and, after the reading, you will lead a class discussion on the topic.
Does boris have a claim of wrongful discharge : Does Boris have a claim of wrongful discharge? Does your answer change if the hospital's employee handbook said that employees would be fired only for "good cause"?
Describe the major adjustment issues discussed in each story : Summarize two (2) articles you selected from the NPR Website. The two (2) article must be from within the last two (2) months. Describe the major adjustment issues discussed in each story
The mean amount spent by a family of four on food per month : What is the probability that a randomly selected family of four spends less than $480 per month? (Round your answer to 4 decimal places.)

Reviews

Write a Review

Business Economics Questions & Answers

  Differentiate the equilibria of model

Differentiate the equilibria of model. Also the classification should be a function of the bliss point of the candidates.

  Approach in international marketing and advertising

What is the programmed management approach in international marketing and advertising? How are Kraft Heinz, P&G, Nestle and Starbucks are handing this?

  Bavarian crystal works

As Bavarian Crystal Works is only one for many crystal producers in the world market, it can wholesale as many of the decanters as it wishes for $50 apiece.

  Finance production of handheld electronic brain

Apple Computer wants to have $2.1 billion available 5 years from now to finance production of a handheld “electronic brain” that, based on your behavior, will learn how to control nearly all the electronic devices in your home, such as the thermostat..

  Soft selling and adverse selection

If trying to sell a new accounting system that will reduce cost by 10%. Instead of pricing the product you give the cost as 50% of their cost savings. Describe the information assymetry and adverse selection problem and why soft selling is successful..

  Suppose stock markets-expect aggregate

Suppose stock markets in the U.S. have a very successful month, and the indices increase by 10%. As a result, we can expect aggregate ______ to ______.

  What level of excess reserves does the bank now have

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $20,000 in currency into the bank and that currency is added to reserves. What level of excess reserves does the bank ..

  Quantified the relationship between the price of products

A large company in the communication and publishing industry has quantified the relationship between the price of one of its products and the demand for this product as Price = 150- 0.01 x Demand for an annual printing of this particular product.

  Relative to an output--based system

A more serious problem with input-based pay systems (e.g., a wage her hour), relative to an output--based system, is:

  Wickedly efficient widgets and wildly nepotistic widgets

Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW), produce widgets with the same production function y =K^(1/2) L^(1/2), where K is the input of capital and L is the input of labor

  What determines what role a state might play

What are the four roles that states can play in negotiated global environmental regimes? What determines what role a state might play? Why do states sometimes shift roles?

  Property of diminishing marginal product

Which of the following possibilities is consistent with the property of diminishing marginal product.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd