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FIU FIN4486 Homework 3 Chapters 7

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Question;Company A can borrow yen at 14.1;percent and dollars at 13.2 percent. Company B can borrow yen at 15.5 percent;and dollars at 13.667 percent. At what interest rates, do company A and B;respectively have a comparative advantage?;Selected;Answer;Answers: a.;A: 13.2 percent, B: 15.5 percent;b.;A: 14.1 percent, B: 13.667 percent;c.;B has comparative advantage in both markets.;d.;A has a comparative advantage in both markets.;? Question;2;20 out of 20 points;Company A can borrow yen at 10.6;percent and dollars at 9.3 percent. Company B can borrow yen at 9.1 percent and;dollars at 8.8 percent. If a financial intermediary charges a fee of 0.15;percent, what is the gain to each party to the swap? The gain is evenly split;between the two parties and exchange rate risk assumed by the intermediary.;Selected;Answer;Answers: a.;0.5 percent;b.;0.425 percent;c.;0.85 percent;d.;0.575 percent;? Question;3;20 out of 20 points;Company A can borrow yen at 16.0;percent and dollars at 14.6 percent. Company B can borrow yen at 14.6 percent;and dollars at 14.133 percent. If A would like to borrow yen and B would like;to borrow dollars. The financial intermediary charges a fee of 0.14. The gain;is evenly split between the two parties and exchange rate risk assumed by the;intermediary. Design a swap. What is company A's yen rate leg and B's dollar;rate leg in the swap?;Selected;Answer;Answers: a.;A: receive 14.203 percent yen, B: receive 14.203 percent;dollars;b.;A: pay 14.063 percent yen, B: pay 14.063 percent dollars;c.;A: receive 15.463 percent yen, B: receive 13.597 percent;dollars;d.;A: pay 15.603 percent yen, B: pay 13.737 percent dollars;? Question;4;20 out of 20 points;Company A can borrow fixed at;13.3 percent and floating at LIBOR+ 0.6 percent. Company B can borrow fixed at;12.1 percent and floating at LIBOR+ 0 percent. If a financial intermediary;charges a fee of 0.12 percent, what is the gain to each party to the swap?;Assume the gain is evenly split between the two parties.;Selected;Answer;Answers: a.;0.84 percent;b.;0.3 percent;c.;0.24 percent;d.;0.36 percent;? Question;5;20 out of 20 points;Company A can borrow fixed at;14.8 percent and floating at LIBOR percent. Company B can borrow fixed at 16.2;percent and floating at LIBOR+ 0.35 percent. A financial intermediary charges a;fee of 0.14 percent. Company A wishes to borrow floating and company B wishes;to borrow fixed. Assume the gain is evenly split between the two parties and;floating rate legs are LIBOR. Design the swap. What is the company A's fixed;rate leg and company B's fixed rate leg, respectively.;Selected;Answer;Answers: a.;A: receive 15.255, B: pay 15.395 percent;b.;A: pay 15.255, B: receive 15.395 percent;c.;A: receive 15.395, B: pay 15.255 percent;d.;A: receive 14.345, B: pay 17.005 percent;Saturday, April 19, 2014 12:23:37 AM EDT

 

Paper#49990 | Written in 18-Jul-2015

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