The treasurer of a small bank has borrowed funds for 3 months at an interest rate...

The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 6.73% and has lent funds for 6 months at 7.87%. a. Represent the exposure on cash flow diagrams. b. To cover his exposure created by the mismatch of maturities, the dealer signs a forward loan. Calculate this treasurer’s break - even forward rate on interest, assuming no other costs. c. Assume that instead, the treasurer decides to wait 3 months and take a spot loan then. To cover his exposure, the treasurer signs a 3x6 FRA. (i) Use cash flow diagrams to show how this achieves his goal. (ii) What is the settlement amount is the forward rate is 6.87%, the Libor rate on settlement date is 6.09%, and the amou nt the bank needed to c over the mismatch is 38million?

Solutions

Expert Solution

Answer:

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Jennifer borrowed $ 7111 at a 7.00% interest rate. I paid $ 2,063 small interest for...

Jennifer borrowed $ 7111 at a 7.00% interest rate. I paid $ 2,063 small interest for this loan. How long (period) is her loan?

Cooper corporation has borrowed $120,000 from the bank at 8% annual interest rate, compounded monthly. The...

Cooper corporation has borrowed $120,000 from the bank at 8% annual interest rate, compounded monthly. The company plans to pay $2000 per month for the first 12 months, and then pay $2500 per month for the next 12 months. Find the remaining balance of the loan after 24 months. (Answer: $82655.21) Please answer in excel format

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity...

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity of 30 years. Determine the monthly mortgage payment.

An economist would recommend that the Bank of Canada change the interest rate for borrowed money...

An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed. (a) [1 mark] Define the parameter you are testing. (b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test whether...

4. An economist would recommend that the Bank of Canada change the interest rate for borrowed...

4. An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed. (a) [1 mark] Define the parameter you are testing. (b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test...

A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0....

A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0. This bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively. This bank also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of .90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0. What is the weighted interest-sensitive gap for this...

You have a $200,000.00 budget borrowed (Loan) from a bank, with an interest rate of 4.5%...

You have a $200,000.00 budget borrowed (Loan) from a bank, with an interest rate of 4.5% per annum. (Loan Date = January 1, 2018) Cars purchased must be ONLY New 2018 models, Ford, Chevrolet AND Dodge cars mixed from the Big 3 US Auto manufacturers. You can reinvest buying new cars from the profits you earn from the original rental car fleet fees; assume 80% of the vehicles will be rented at all times. Assume 1.5% product price increase each...

A bank just approved your small business loan for $20,000. The loan has an interest rate...

A bank just approved your small business loan for $20,000. The loan has an interest rate of 8.0% and will be repaid with 10 end-of-year payments. What is the required annual loan payment? Halfway through the loan's life, what is the loan’s remaining balance? What percentage of the total payments made during the first five years will be made toward interest?

4)Mario Morales borrowed $ 15,000 at an interest rate of 14% to be paid in 3...

4)Mario Morales borrowed $ 15,000 at an interest rate of 14% to be paid in 3 years. The loan must be repaid in three equal payments at the end of each year. a)Calculate the annual payment to be made. b)Prepare an amortization table that shows the principal and interest payment, as well as the loan balance for each year. c)Explain why the interest portion of each payment decreases over time.

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity of 30 years.

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity of 30 years. Determine the monthly mortgage payment.

Subjects