H has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is LIBOR + 4%. H would have to pay a fixed rate of 8% on a fixed rate loan. H's bank has found a potential counterparty for a swap arrangement.The counterparty wishes to raise a variable rate loan. It would pay LIBOR + 1% on a variable rate loan and 9% on a fixed rate.The bank will require 10% of the savings from the swap and H and the counterparty will share the remaining saving equally.Calculate H's effective rate of interest from this swap arrangement.
Answer(s): A
DRAG DROPG plc has decided to move its production plant to overseas Country A. This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the staff would have to move to Country A.The Production Director has identified that there are some political risks in moving to Country A.Match the methods of reducing the political risks associated with the move to Country A with the corresponding risks.
M plc has a $2 million loan outstanding on which the interest rate is reset every 6 months for the following 6 months and the interest is payable at the end of that 6-month period. The next 6-monthly reset period starts in 3 months and the treasurer of M plc thinks that interest rates are likely to rise between now and then.Current 6-month rates are 7.2% and the treasurer can get a rate of 7.7% for a 6- month forward rate agreement (FRA) starting in 3 months' time. By transacting an FRA the treasurer can lock in a rate today of 7.7%.If interest rates are 8.5% in 3 months' time, what will the net amount payable be? Give your answer to the nearest thousand dollars.
In-depth analysis showing the identification and quantification of exposure to financial risk has become more accessible in recent years. Several varieties of analysis are now available.Which of the following statements are true?
Answer(s): B,D
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