Lafayette Group (U.S.). The Lafayette Group, a private equity firm headquartered in Boston, borrows £5,000,000 for one year at 7.375% interest. a. What is the dollar cost of this debt if the pound depreciates from $2.0260 = £1.00 to $1.9460 = £1.00 over the year? b. What is the dollar cost of this debt if the pound appreciates from $2.0260 = £1.00 to $2.1640 £1.00 over the year? =
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- 1) You are given the following information: r* = 1.0% ● ● ● The current interest rate on a 1 year loan to the U.S. government = 3.0% The MRP on 10 year bonds = 0.75% The LP on U.S. and Zeniba Inc. bonds = 0 The interest rate on a 10 year loan to Zeniba Inc. is 1.5 times the rate on a 10 year loan to the U.S. government a) What is the inflation rate expected to be over the next year? b) Suppose the average annual inflation rate expected each year over the next 10 years is the same as the inflation rate expected over the next year. What should be the current interest rate on a 10 year loan to the U.S. government? c) What is the DRP on a 10 year loan to Zeniba Inc.? How longA3) Finance Currently, the GBP/USD rate is 1.5050 and the three-month forward exchange rate is 1.5269. The three-month interest rate is 6.2% per annum in the U.S. and 4.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the local currency and invest abroad? (USD, no cents)Assume the Canadian dollar rose from US$0.9475 to US$0.9875. A client owns an investment that pays 6% interest in US dollars. What is the client's addition rate of return in US dollars? 4.05% 0.00% 1.78% 4.22%
- The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.5 million, a one year period, an initial spot rate of SF1.5000/$, a 5.000% cost of debt, and a 34% tax rate, what is the effective cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was: a. SF1.5000/$ b. SF1.4400/$ c. SF1.3860/$ d. SF1.6240/%1. MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.4525 to $.4225 in 120 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 120 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).8. The CFO of Vaimato Industries needs to borrow money (a one year loan) in the coming months to support the start up of a new project. The interest rate in the U.S. for a dollar loan was quoted as 14 percent (before taxes). A euro loan is also available at an interest rate of 8.60 percent. In both cases the marginal tax rate is 40 percent. The spot exchange rate (American terms) is $1.2135/€ and the one - year forward rate is $1.2500/€. What is the after-tax cost of debt for the cheapest source of funds? a. 14.00% b. 13.87% c. 10.55% d. 8.40% e. 8.32%
- A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. Select one: a. 7% b. 6.6% C. 6.2% d. 5.4%The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25% p.a. The spot rate is US$0.8203/Canadian$ and the 6-month forward rate is US$0.8113/Canadian$. For a transaction size of US$700,000, how can an investor take advantage of the situation without taking undue risks? Ignore transaction costs and income taxes1. Assume you notice the following information. Assume you spend $1 million USD to create an arbitrage trading strategy. What is your profit is USD. Remember to consider the profit after you pay back your loan Spot (CAD/USD)=1.75 • 1 Year Forward (CAD/USD) = 1.65 • 1 Year Canadian interest rate of 3% in Canadian Dollars (CAD) • 1 Year US interest rate of 4% in US Dollars (USD) 592,484.85
- D4) Finance If the foreign interest rate is 4%, the risk premium on domestic assets, ρ, is 18%, and the expected rate of depreciation of the domestic currency against the foreign currency is 3%, what is the domestic interest rate in percentage terms, given covered interest parity holds? [All variables have a 1-year time frame.]Use the following interest rate assumptions: U.S. = 5.5% Euro = 7.5% If a U.S. firm borrows in euros, the euro would have to ____ against the dollar by ____ in order to have the same effective financing rate from borrowing dollars. Select one: a. depreciate; about 1.86% b. appreciate; about 1.93% c. appreciate; about 1.90% d. depreciate; about 1.93%14. Hilton a Venezuelan company, wishes to borrow $9,000,000 for eight weeks. A rate of 7.250% per annum is quoted by potential lenders in New York, Great Britain, and Switzerland using, respectively, international, British, and the Swiss–Eurobond definitions of interest (day count conventions). From which source should Hilton borrow?