Problem 8.02 – CB Solutions
Multinational Business Finance
Eiteman, Stonehill, and Moffett
16th Edition
Determine the cost or savings of the interest rate swap depending on the rise or fall of LIBOR given in basis points.
Determine the cost or savings of the interest rate swap depending on the rise or fall of LIBOR given in basis points.
During financial crises, short-term interest rates can change quickly, as seen in the table provided for selected dates in September-October 2008. One measure of the TED spread (Treasury-Eurodollar spread) is the differential between the overnight LIBOR interest rate and the 3-month U.S. Treasury bill rate. The question asks to calculate the TED spread between the two market rates in September and October 2008, determine the narrowest and widest date for the spread, and identify which rate moves the most and why when the spread widens dramatically, demonstrating financial anxiety or crisis.
Given that the firm must pay float-rate interest and it wishes to lock in interest rate payments using interest rate futures, determine the gain or loss on the position at various possible floating interest rates.
Calculate the annual payment for a loan with a fixed maturity for a sovereign borrower, taking into account an amortizing structure. Consider the impact of negotiating for various interest rates given by international banks.
Calculate the cost of unwinding the swap some number of year(s) has passed, given the updated fixed interest rates and spot exchange rate for MedStat’s cross-currency swap.
Given that the two firms wish to enter into a swap, determine the comparative advantage, the net interest, and the savings after the swap to both companies. Finally, determine which firm should borrow fixed and which should borrow floating.
Determine the notional principal in SFr, and the amounts paid or received by Ganado for the first, second, and third years. If the firm unwinds the swap after one year, determine the present value of the cash flows, and the settlement of the unwinding.
Calculate the cost of unwinding the swap after one year has passed for LaFarge, the French multinational, following contract cancellations due to the Brexit vote. Use the updated spot exchange rate and interest rates provided to determine the cost accurately.