What risks do the finance house and bank face, Corporate Finance

Assignment Help:

Question :

a) What are the rationales for interest and currency swaps?

b) A finance house and a bank each have a $1billion balance sheet. The finance house has lent out at a fixed rate of 22% pa for five years. The loans are interest only with a bullet repayment of the capital on maturity. It has financed them by the issue of certificates of deposit, paying the T-Bill rate plus 60 basis points.

The bank has access to savings deposits at a fixed rate of 4%. It has lent out these funds on a floating rate basis at the T-Bill rate plus 220 basis points.

All floating rates are reset each quarter and fixed rate payments are made at the same time. The 3-month T-Bill rate is initially 6%.

a) What are the spreads on which the finance house and the bank operate?

b) What risks do the bank face and finance house?

c) Prepare a swap that will immunise both spreads. Describe how it works and why it might be preferred to a policy of matching.


Related Discussions:- What risks do the finance house and bank face

Calculate the net present value of the proposed venture, MOUNTAIN BLEND SPE...

MOUNTAIN BLEND SPECIALITY COFFEE CO Mountain Blend Speciality Coffee Co, a listed company, is the largest coffee wholesaler and roaster in Carvania. At present it is solely invo

Do managers really look after the interest of shareholders, Question: "...

Question: "The separation of ownership and control of a corporate firm has given rise to what is called ‘a positive and normative divide' in explaining managerial behaviour. F

Ranking projects: NPV vs IRR Conflicts, how can i rank a project when there...

how can i rank a project when there are conflict between IRR & NPV

Construct a table that shows the profit and payoff, Question: i) The ...

Question: i) The treasurer of a corporation is trying to choose between options and forwards contracts to hedge the corporation's foreign exchange risk. Discuss the relative

What do you understand by interest rate risk, Problem: Banks are net le...

Problem: Banks are net lenders, when they have excess funds, or net borrowers, when they have future deficits. As any lender or borrower, they cannot eliminate interest rate r

Analytical derivation of the capital asset pricing model, Question: a) ...

Question: a) Give an analytical derivation of the Capital Asset Pricing Model (CAPM) and supplement your analysis with diagrammatic illustrations where appropriate. b) The

Merger and aquisition, It is given that company A will acquire company B wi...

It is given that company A will acquire company B with shares of common stock. Present earnings of A is rs. 20 million and of company B is rs. 5 million. Earning price per share of

Evaluate the projects, Consider the subsequent information about four diffe...

Consider the subsequent information about four different projects. Each requires an initial outlay of Rs2,000,000 but the firm only has funds to undertake one project. The firm ha

White collar crime, What do you think the future has in store in terms of w...

What do you think the future has in store in terms of white collar crime?Are there certain kinds of white collar crime discussed in this text that you believe will increase?Are the

Compxm exam, can you assist with the all the rounds in compxm exam?

can you assist with the all the rounds in compxm exam?

Write Your Message!

Captcha
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