Question

You are assigned to borrow $10,000,000 for eight weeks for your company. You got quotes for New York (international), Great Britain (British) and Switzerland (Swiss-Eurobond) definitions of interest day count conventions. You are given a rate of 5.75% per annum by all potential lenders. From which source should you borrow? Prepare a detailed table on your costs and show which option is the least costly. (Look at the conventions for day counts in your handouts)

Day count conventions for calculating annual rates: International: Financial year=360 days Great Britain: Financial year=365 days Swiss Eurobond: 30/360 (1 month=30 days, 4 weeks= one month), financial year=360 days

Answer 1

Here I am borrowing for 7*8 or 56 days

For International:

Interest for 1 day =5.75%/360=0.01597% So, the total interest I need to pay for 8 weeks= 10,000,000*0.01597%*56=$89444.44

For Great Britain:

Interest for 1 day =5.75%/365=0.01575% So, the total interest I need to pay for 8 weeks= 10,000,000*0.01575%*56=$88219.18

For Swiss Eurobond :

Interest for 1 month =5.75%/12=0.4791% So, the total interest I need to pay for 8 weeks or 2 months= 10,000,000*0.4791%*2=$95833.33

Here is the summary:

Region	International	britain	Swiss Eurobond
Interest to be paid for 4 weeks	$89,444.44	$88,219.18	$95,833.33

So, Britain is the country from where I should borrow.