Options, Futures, and Other Derivatives with Derivagem CD (7th Edition)

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Chapter 7 Homework Solution 1. Co. A has CA in fixed Co. B has CA in floating Borrow where the CA is and swap Gains-to-Trade = 90 bps: 10 for the bank and 40 for each company Co. A should net LIBOR – 0.3% Co. B should net 6.0% Co. B: (LIBOR + 0.6%) - LIBOR + 5.4% = 6.0% Co. A: 5.0% - 5.3% + LIBOR = LIBOR – 0.3% 2. Co. X has CA in yen Co. Y has CA in dollars Borrow where the CA is and swap Gains-to-Trade = 110 bps: 50 for the bank and 30 for each company Co. X should net 9.3%$ Co. Y should net 6.2%¥ Co. X: 5.0%¥ - 5.0%¥ + 9.3%$ = 9.3%$ Co. Y: 10.0%$ - 10.0%$ + 6.2%¥ = 6.2%¥ Bank: 5.0%¥ - 9.3%$ + 10.0%$ - 6.2%¥ = -1.2%¥ + 0.7%$ = -0.5% (Since positive numbers indicate payments, the bank is receiving 50 bps.) 9. Note: Investment implies cash inflows Co. X has CA in floating Co. Y has CA in fixed Borrow where the CA is and swap Gains-to-Trade = 80 bps: 20 for the bank and 30 for each company Co. X should net 8.3% Co. Y should net LIBOR + 0.3% Co. X: LIBOR – LIBOR + 8.3% = 8.3% Co. Y: 8.8% - 8.5% + LIBOR = LIBOR + 0.3%
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Unformatted text preview: 11. Co. A has CA in fixed C$ Co. B has CA in floating US$ Borrow where the CA is and swap Gains-to-Trade = 100 bps: 50 for the bank and 25 for each company Co. A should net LIBOR +0.25%US$ Co. B should net 6.25%C$ Co. B: LIBOR + 1.0%US$ - (LIBOR + 1.0%US$) + 6.25%C$ = 6.25%C$ Co. A: 5.0%C$ - 5.0%C$ + (LIBOR + 0.25%US$) = LIBOR + 0.25%US$ Bank: (LIBOR + 1.0%US$) - 6.25%C$ + 5.0%C$ - (LIBOR + 0.25%US$) = -1.25%C$ + (LIBOR + 0.75%US$) = -0.5% (Since positive numbers indicate payments, the bank is receiving 50 bps.) 20. Co. A has CA in pounds Co. B has CA in dollars Borrow where the CA is and swap Gains-to-Trade = 40 bps: 10 for the bank and 15 for each company Co. A should net 6.85%$ Co. B should net 10.45%£ Co. A: 11.0%£ - 11.0%£ + 6.85%$ = 6.85%$ Co. B: 6.2%$ - 6.2%$ + 10.45%£ = 10.45%£ Bank: 11.0%£ - 6.85%$ + 6.2%$ - 10.45%£ = 0.55%£ - 0.65%$ = -0.1% (Since positive numbers indicate payments, the bank is receiving 10 bps.)...
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Chapter 7 - 11. Co. A has CA in fixed C$ Co. B has CA in...

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