1.A bank has the following transaction with a AA-rated corporation (a) A two-year interest rate swap...

1.A bank has the following transaction with a AA-rated corporation (a) A two-year interest rate swap with a principal of $100 million that is worth $3 million(b) A nine-month foreign exchange forward contract with a principal of $150 million that is worth –$5 million(c) A long position in a six-month option on gold with a principal of $50 million that is worth $7 million What is the capital requirement under Basel I if there is no netting? What difference does it make if the netting amendment applies? What is the capital required under Basel II when the standardized approach

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A bank has the following transactions with another BBB-rated bank: (i) A three-year interest rate swap...

A bank has the following transactions with another BBB-rated bank: (i) A three-year interest rate swap with a principal of $80 million that is worth $2 million. (ii) A two-year foreign exchange forward contract with a principal of $120 million that is worth –$4 million. (iii) A long position in a seven-year option on silver (i.e. precious metal other than gold) with a principal of $40 million that is worth $6 million. (a) What is the capital requirement under Basel...

. Consider the following interest-rate swap: • the swap starts today, January 1 of year 1...

. Consider the following interest-rate swap: • the swap starts today, January 1 of year 1 (swap settlement date) • the floating-rate payments are made quarterly based on actual / 360 • the reference rate is 3-month LIBOR • the swap rate is 6% • the notional amount of the swap is $40 million • the term of the swap is three years (a) Suppose that today’s 3-month LIBOR is 5.7%. What will the fixed-rate payer for this interest rate...

1. How could a bank utilize an interest rate swap, if it has a classic “floating...

1. How could a bank utilize an interest rate swap, if it has a classic “floating rate deposits as liabilities and fixed rate loans as assets” balance sheet? What would it choose to pay in a swap, what would it choose to receive? A. It would choose to pay fixed and receive floating B. It would choose to receive fixed and pay to float 2. The reason the bank in question 1 might seek to enter an interest rate swap...

): Evaluate the following pure-yield pickup swap: You currently hold a 20-yearm AA-rated, 9% coupon rate...

): Evaluate the following pure-yield pickup swap: You currently hold a 20-yearm AA-rated, 9% coupon rate bond with yield to maturity of 11.0%, and face value $1,000. As a swap candidate, you are considering a 20-yearm AA-rated, 11% coupon rate bond with yield to maturity of 11.5%, assume reinvestment rate is 11.5% and coupon are paid semi-annually, please fill out the table below and you must show (explain) clearly how numbers in the table are obtained. Current Bond Candidate bond...

CDE Bank has the following credit exposures: Sovereign loans: $7M rated AA Business loans: $26M rated...

CDE Bank has the following credit exposures: Sovereign loans: $7M rated AA Business loans: $26M rated BBB Personal loans: $14M Residential mortgages: $18M with 50%-60% LTVs and $19M with LTVs <50%; 55% of these are rented out What is the bank's credit risk RWA under the forthcoming SA?

Evaluate the following pure-yield pickup swap: You currently hold a 15-year, AA-rated, 8.5% coupon bond priced...

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A French firm enters into a two-year interest rate swap in euros on April 1, 2005....

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Interest Rate Swap: Use the following borrowing information to structure an interest rate swap between Counterparties...

Interest Rate Swap: Use the following borrowing information to structure an interest rate swap between Counterparties A and B, two large, corporate organizations.  Notional Principal: $50 million  Tenor of Swap: Three years  Settlement: Semi-annually; Rates set in advance  Counterparty A is very creditworthy, with capacities to borrow in the fixed rate market at a rate of 4.5%, and in the floating rate market at LIBOR+90.  Counterparty B is fairly creditworthy, with capacities to borrow in...

Evaluate the following pure-yield pickup swap: You currently hold a 20-yearm AA-rated, 9% coupon rate bond with yield to maturity of 11.0%.

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Consider the following interest rate swap: Company A can borrow from a bank at 8% fixed...

Consider the following interest rate swap: Company A can borrow from a bank at 8% fixed or LIBOR + 1% floating (borrows fixed); Company B can borrow from a bank at 9.5% fixed or LIBOR + .5% (borrows floating). Company A prefers floating and Company B prefers fixed. By entering into a swap agreement, both A and B are better off than they would be borrowing from the bank with their preferred type of loan, and the swap dealer makes...

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