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kenldykido2300
30.03.2020 •
Business
Suppose that Thales would like to borrow fixed-rate yen, whereas Korea Development Bank would like to borrow floating rate US dollars. Thales can borrow fixed-rate at 4.9% or floating $ at LIBOR + 0.25%. KDB can borrow fixed rate 4.5% for the ¥ and LIBOR +0.8% for the $. a) What are the possible cost savings that Thales can realize through an interest rate/currency swap with KDB? b) Assuming a notional principal of $125 million, and spot rate ¥105/$, what do the possible cost savings translate into in Japanese yen terms?
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Ответ:
¥9,843,750
Explanation:
In this question, we are asked to calculate the possible cost savings in Japanese Yen, given a notional principal of a certain amount in US dollars.
Firstly, we identify the following parameters obtainable from the question;
The fixed rate of borrowing = 4.9%
The fixed rate for the Yen = 4.5%
Notional principal = $125 million
Spot rate = ¥105/$
The difference in floating = LIBOR + 0.8% - LIBOR + 4.95% = 0.55%
The difference in fixed rate = 4.9 - 4.5 = 0.4%
The overall cost saving by entering into interest rate swap is 0.55% - 0.4% = 0.15%
Since profit are equally distributed, the profit here = 0.15/2 = 0.075%
The translation in Japanese yen will be 0.075/100 * 105 * 125,000,000 = ¥9843750
Ответ:
Answer
The answer and procedures of the exercise are attached in the following archives.
Explanation
You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.