Suggested Solutions for Tutorial 9

Suggested Solutions for Tutorial 9 - 1 Suggested Solutions...

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1 Suggested Solutions for Tutorial 9 Please note that following suggested solutions are only very basic points and you need to read the textbook and other reference materials for better understanding. 2. (a) Describe the features of short-term eurocurrency bank advances and stand-by facilities. Short-term eurocurrency bank advances: a fully drawn advance provided by a bank to an overseas borrower in another currency the term of the advance is set and the full amount is generally drawn-down on approval a commitment fee is charged if the advance is not drawn shortly after approval the repayment of principal and interest normally is as a lump sum at the end of the term of the loan with no provisions for early repayment the short-term advance can be extended to provide a revolving credit arrangement the interest reference rate is usually the rate at which banks in the market offer funds to each other, for example, LIBOR or SIBOR Eurocurrency stand-by facilities: a back-up, or contingency, source of funds to be used in the event of an unanticipated need for short-term funding the eurocurrency market is normally a reliable source of liquidity funding the charges associated with the stand-by facility include both a commitment fee and an interest charge on the funds that are drawn 4. The euronote market is a generic term that incorporates both note issuance facilities (NIF) and eurocommercial paper (ECP). What features of these facilities are the same and in what ways do they differ from each another? Euronote market transactions are short-to-medium-term debt instruments issued directly into the markets NIF and ECP are both euronote instruments; they are promissory notes issued by a borrower into overseas markets in a currency other than the currency of the country in which the paper is issued Similarities between a NIF and ECP: o promissory notes—commonly referred to as commercial paper o drawn (issued) by a borrower in its own name (one-name paper)
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This note was uploaded on 08/30/2011 for the course AFF 1000 taught by Professor Chalmers during the Three '11 term at Monash.

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Suggested Solutions for Tutorial 9 - 1 Suggested Solutions...

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