Question
In: Finance
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.4 million, a one-year period, an initial spot rate of SF1.4900, a 5.498% cost of debt, and a 36% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:
A. SF1.4900
B. SF1.4200
C.SF1.3550
D. SF1.6030
a. If the exchange rate at the end of the period was SF1.4900 what is the effective after-tax cost of debt?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.3 million, a one-year period,
an initial spot rate of SF1.4700/$, a 5.125% cost of debt, and a
30% tax rate, what is the effective after-tax cost of debt for
one year for...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm...
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.5 million, a one year period, an
initial spot rate of SF1.5000/$, a 5.000% cost of debt, and a 34%
tax rate, what is the effective cost of debt for one year for...
The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying...
The chapter demonstrated that a firm borrowing in a foreign
currency could potentially end up paying a very different effective
rate of interest than what it expected. Using the same baseline
values of a debt principal of SF1.6 million, a one-year period,
an initial spot rate of SF1.4700/$, a 5.385% cost of debt, and a
40% tax rate, what is the effective after-tax cost of debt for
one year for a U.S.dollar-based company if the exchange rate at
the end...
Question 3: Suppose that on January 1st the annual cost of borrowing in Swiss Francs and...
Question 3: Suppose that on January 1st the annual cost of
borrowing in Swiss Francs and US dollars are 5% and 7% respectively
(R-swiss=5% and R-us=7%). The spot rate of USD on January 1st is
CHF0.98 (or USD/CHF0.98) per USD.
Question 3a: Suppose one year forward rate was quoted as CHF
0.95 per dollar (or USD/CHF0.95). Given you have a credit of $10M
to mobilize, is there any CIA (Covered Interest Arbitrage)
opportunity? If so, how much is the CIA...
1) A bank manager with 11,000,000 Swiss francs (CHF) to invest in the foreign currency market...
1) A bank manager with 11,000,000 Swiss francs (CHF) to invest
in the foreign currency market notices the current franc/US dollar
exchange rate is CHF1.1/$ and the current Mexican peso/franc
exchange rate is MP25/CHF. If a bank quotes a cross rate of
$.03/MP, how much money can she make (in terms of francs) via
triangular arbitrage? Round intermediate steps to four decimals and
your final answer to two. Do not use currency symbols when entering
your answer.
2) The peso...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
Rock company (a US firm) exports to Switzerland and expects to receive 500,000 Swiss francs in...
Rock company (a US firm) exports to Switzerland and expects to
receive 500,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 9% when investing funds,
and 11% when borrowing funds. The spot rate of the Swiss franc is
$.80. The firm expects that the spot rate of the Swiss franc will
be $.75 in one year. There is a put option available...
Narto Co. (a U.S. firm) exports to Switzerland and expects to receive 500,000 Swiss francs in...
Narto Co. (a U.S. firm) exports to Switzerland and expects to
receive 500,000 Swiss francs in one year. The one-year U.S.
interest rate is 5% when investing funds and 7% when borrowing
funds. The one-year Swiss interest rate is 4% when investing funds,
and 6% when borrowing funds. The spot rate of the Swiss franc is
$.80. Narto expects that the spot rate of the Swiss franc will be
$.72 in one year. There is a put option available on...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days. The current spot...
A U.S. firm has a payable of 125,000 Swiss francs in 90 days.
The current spot rate is $.6698/SFr and the 90 day forward rate is
$.6776/SFr.
90 day call option on SFr:
strike=$.68, premium=$.0096
90 day put option on SFr:
strike=$.68, premium=$.0105
Interest
rates
US
Switz.
Possible spot rate in 90 days
90 day deposit
rate
3%
3%
Spot
Probability
90 day borrowing
rate
3.2%
3.2%
$.65
10%
$.67
20%
$.69
70%
______________________________________________________________________
Calculate the expected...
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