Assignment2 - The Johnson School at Cornell University...

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Page 1 of 3 The Johnson School at Cornell University Professor George Gao NBA 6730 Fall 2010 Assignment 2 Note: This assignment is due on Tuesday, September 21 . There are two parts of assignment. You can decide to work on and turn in either Part I or Part II or both. Please work on these problems in groups of three to five people, and hand in one solution per group. You may discuss the problems only with the members of your group. Answers should be typed and are due at the beginning of class . You are allowed to form a study group by working with students in another section, but the assignment must be turned in at the beginning of class of the earliest section in which any group member is enrolled. Part I 1. Company X wishes to borrow Euros (€) at a fixed rate of interest. Company Y wishes to borrow Japanese Yens (¥) at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted with the following interest rate (per annum) at which they can borrow: Yens Euros Company X 4.0% 8.0% Company Y 5.5% 8.4% Design a swap that will net a bank, acting as an intermediary, 50 basis points per annum (100 basis points = 1%). Make the swap equally attractive to the two companies and ensure that the bank assumes all foreign exchange risk. 2.
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This note was uploaded on 10/26/2010 for the course JOHNSON 6730 at Cornell University (Engineering School).

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Assignment2 - The Johnson School at Cornell University...

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