Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 6.5% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 20.00 pesos per dollar, but it dropped to 19.55 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 19.55 pesos per dollar through the end of the loan period, what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places. Oa. 8.69% O b.6.61% Oc.7.26% O d. 4.21% Oe. 8.60%
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- Pfizer, an American corporation, just signed a contract to sell laboratory equipment for COVID -19 research to Bayer AG- a German corporation. Bayer AG will be billed €10 million, which is receivable in 3 months. The current spot exchange rate is $1.1290/€ and the 3-month forward rate is $1.1945/€. The U.S. annual deposit rate is 4.0% and annual U.S. borrowing rate is 8%. The annual borrowing rate at the Dresden Bank (Germany) is 8.0%. Pfizer’s cost of capital is 10% per annum. Put options on Euro are available at strike rate of $1.1960/€ and premium of 1.0%. Call options on Euro are available at strike rate of $1.1970/€ and premium of 1.5%. Pfizer is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Outline how you would deal with transaction exposure. Calculate and discuss different hedging alternatives. Which alternative would you recommend? Why?Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively?55) A U.S.-based company, Stewart, Inc., arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 10.0% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 5.75 pesos per dollar, but it dropped to 5.10 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Stewart must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective interest rate will Stewart end up paying on the loan? a. 10.36% b. 17.44% c. 11.50% d. 21.79% e. 20.00% 57)You are considering investing in a European bank account that pays a nominal annual rate of 18%, compounded monthly. If you invest $5,000 at the beginning of each month, how many months would it take for your account to grow to $250,000? Round fractional…
- Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,950,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Present value of the benefit of the concessionary loan = ?Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest…Sun Bank USA has purchased a 8 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)?…
- Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10%. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000?Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays 15 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $180,000 (disregarding any change in principal values)?…McDougan Associates (USA). McDougan Associates, a U.S.-based investment partnership, borrows €80,000,000 at a time when the exchange rate is $1.3460 = €1.00. The entire principal is to be repaid in three years, and interest is 6.250% per annum, paid annually in euros. The euro is expected to depreciate vis-à-vis the dollar at 3% per annum. What is the effective cost of this loan for McDougan?
- McDougan Associates (USA). McDougan Associates, a US-based investment partnership, borrows €90,000,000 at a time when the exchange rate is $1 3492/E. The entire principal is to be repaid in three years, and interest is 6.450% per annum paid annually in euros The euro is expected to depreciate vis-à-vis the dollar at 2.7% per annum. What is the effective cost of this loan for McDougan? outflow (Round the amount to the nearest whole number and the exchange rate to four decimal places) Year 11 Year 2 Proceeds from borrowing euros Interest payment due in euros Repayment of principal in year 3 Total cash flow of euro-denominated debt Year 0 €90,000,000 € ETTE 13492 (5.805.000) € (5,805,000) € 90,000.000 (5,805,000) (5,805,000) 13128 Expected exchange rate, S Dollar equivalent of euro-denominated cash flow $121.426.000 (7.620.804) $ (7.415.307) $ (119,076,034) What is the effective cost of this loan for McDougan? (Round to two decimal places) Year 3 1.2774 (5,805,000) (90,000,000) 95,005,000…Consider a U.S.-based company that exports goods to Switzerland. The U.S. company expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4% p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following statements is correct: The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to sell Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to sell Swiss francs forwardSuppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$2.00 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.80 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F $2,000,000.00 at $0.80 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$2,000,000.00×$0.80 per Fijian dollars =$1,600,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.67 per Fijian dollar. If this were the case the outside of the contract only (U.S. dollars) would be needed to exchange for the required F$2,000,000.00.