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Unformatted text preview: INTERNATIONAL BUSINESS FINANCE FINS3616 Tutorial Week 6 1 CHAPTER 9 T REASURY M ANAGEMENT OF I NTERNATIONAL T RANSACTIONS 2 CHAPTER 9 PROBLEM 1 Fruit of the Loom has a bankers acceptance drawn on Banque Paribas with a face value of $10 million due in 90 days. Paribas will withhold an acceptance fee of $10,000 at maturity. Fruit of the Looms bank is willing to buy the acceptance at a discount rate of 6% compounded quarterly. a) How much will Fruit of the Loom receive if it sells the bankers acceptance? A 6% interest rate compounded quarterly is the same as a 1.5% quarterly rate. The net amount payable at maturity is $9,990,000 after subtracting Paribas acceptance fee ($10,000,000 $10,000). Fruit of the Loom will receive ($9,990,000)/(1.015) = $9,842,365 if it sells the acceptance to its bank. 7 FINS3616 Peter Kjeld Andersen CHAPTER 9 PROBLEM 1 b) What is the all in cost of the acceptance? The all in cost of the acceptance is [($10,000,000)/($9,842,365)] 1 = 1.60% per quarter or an effective annual rate of (1 + 0.0160) 4 1= 0.0656 or 6.56% per year. 10 FINS3616 Peter Kjeld Andersen CHAPTER 9 PROBLEM 3 Savvy Fare has a bankers acceptance drawn on Credit Lyonnais with a face value of $1 million due in six months. Credit Lyonnais receives an acceptance fee of $2,000 at maturity. A U.S. bank is willing to buy the acceptance at a discount rate of 5% compounded quarterly. a) How much will Savvy Fare receive if it sells the bankers acceptance? The net amount payable at maturity is $998,000 after subtracting the banks acceptance fee. A 5% annual rate compounded quarterly is the same as a 1% quarterly rate. Savvy Fare will receive ($998,000)/(1.0125) 2 = $973,510 if it sells the acceptance to its bank today. 16 FINS3616 Peter Kjeld Andersen CHAPTER 9 PROBLEM 3 b) What is the all in cost of the acceptance? The all in cost of the acceptance to Savvy Fare is [($1,000,000)/($973,510)] 1 = 2.72% per six months or an effective annual rate of (1.0272) 2 1= 5.52% per year. 19 FINS3616 Peter Kjeld Andersen CHAPTER 9 PROBLEM 4 Suppose Savvy Fare sells a $1 million receivable to a factor. The receivable is due in six months. The factor charges an upfront fee of 4% for purchasing the receivable on a non recourse basis, and a factoring fee of 1% for per month for every month the receivable is outstanding. The 1% per month factoring fee is paid at the time the receivables are sold to the factor. a) How much will Savvy Fare receive for its receivables? Cash flows faced by Savvy Fare include the following: Face amount of receivable $1,000,000 Less 4% nonrecourse fee $40,000 Less 1% monthly factoring fee over six months $60,000 Net amount received $900,000 22 FINS3616 Peter Kjeld Andersen CHAPTER 9 PROBLEM 4 b) What is the all in cost?...
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tut slides - INTERNATIONAL BUSINESS FINANCE FINS3616...

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