+ 3. The profit generated by the subsidiary in the U.K. is considered as a good...

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+ 3. The profit generated by the subsidiary in the U.K. is considered as a good source of money to be used to pay for the import of manufacturing equipment from Japan for the electronic component plant in the U.S.A. The CEO has already entered into negotiations with the Japan supplier of the equipment. The supplier is willing to provide HighTech 3 years to pay for the equipment that will be shipped to HighTech, but the payments must be conducted with quarterly instalments of 5,250,000 Yen by the U.K. subsidiary. This is why the CEO wants you to construct a currency swap arrangement where the profits of the U.K. subsidiary can be used to pay for the equipment. You have to apply the swap bank quotes to conduct this three year swap and also depict the swap graphically for the CEO to see how the swap will work. Relevant information, that you will require are provided below: Exchange rates: $/JPY $/Won $/CAD $/GBP $/AU$ $/ZAR Current borrowing interest rates on loans: USA Japan South Korea Canada UK Australia South Africa Spot Bid Ask 0.0094 0.0095 0.0006 0.0008 0.7614 0.7616 1.3034 1.3038 0.7225 0.7226 0.0606 0.0607 Fixed Libor 0.640% 0.130% 0.525% 0.015% 1.164% 0.654% 0.666% 0.156% 0.577% 0.067% 0.612% 0.102% 5.045% 4.535% BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Years $ Bid% Yen Won CAD$ GBP AU$ ZAR Bid% Ask% Bid% Ask% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% 1 0.630 0.650 0.515 0.535 1.154 1.174 0.656 0.676 0.567 0.587 0.602 0.622 5.035 5.055 2 0.640 0.660 0.525 0.545 1.164 1.184 0.666 0.686 0.577 0.597 0.612 0.632 5.045 5.065 3 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 4 0.660 0.680 | 0.545 | 0.565 1.184 1.204 0.686 0.706 0.597 0.617 0.632 0.652 5.065 | 5.085 5 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 0.662 5.075 5.095 6 0.680 0.700 0.565 0.585 1.204 1.224 0.706 0.726 0.617 0.637 0.652 0.672 1.214 1.234 0.716 0.736 0.627 0.647 0.662 0.682 5.095 5.115 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 1.234 1.254 | 0.736 0.756 0.647 0.667 0.682 0.702 5.115 5.135 1.244 1.264 0.746 0.766 0.657 0.677 0.692 0.712 5.125 5.145 7 0.690 0.710 0.575 0.595 8 0.700 0.720 0.585 0.605 9 0.710 0.730 0.595 0.615 10 0.720 0.740 0.605 0.625 5.085 5.105 Other summarised information: United Kingdom subsidiary profits generated quarterly: Import cost of equipment/machinery for the manufacturing of electronic components in the U.S.A: 500,000 63,000,000 Period of time that the components can be paid (in years) 3 Number of payments per year Amount of each payment: 4 5,250,000 + 3. The profit generated by the subsidiary in the U.K. is considered as a good source of money to be used to pay for the import of manufacturing equipment from Japan for the electronic component plant in the U.S.A. The CEO has already entered into negotiations with the Japan supplier of the equipment. The supplier is willing to provide HighTech 3 years to pay for the equipment that will be shipped to HighTech, but the payments must be conducted with quarterly instalments of 5,250,000 Yen by the U.K. subsidiary. This is why the CEO wants you to construct a currency swap arrangement where the profits of the U.K. subsidiary can be used to pay for the equipment. You have to apply the swap bank quotes to conduct this three year swap and also depict the swap graphically for the CEO to see how the swap will work. Relevant information, that you will require are provided below: Exchange rates: $/JPY $/Won $/CAD $/GBP $/AU$ $/ZAR Current borrowing interest rates on loans: USA Japan South Korea Canada UK Australia South Africa Spot Bid Ask 0.0094 0.0095 0.0006 0.0008 0.7614 0.7616 1.3034 1.3038 0.7225 0.7226 0.0606 0.0607 Fixed Libor 0.640% 0.130% 0.525% 0.015% 1.164% 0.654% 0.666% 0.156% 0.577% 0.067% 0.612% 0.102% 5.045% 4.535% BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Years $ Bid% Yen Won CAD$ GBP AU$ ZAR Bid% Ask% Bid% Ask% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% 1 0.630 0.650 0.515 0.535 1.154 1.174 0.656 0.676 0.567 0.587 0.602 0.622 5.035 5.055 2 0.640 0.660 0.525 0.545 1.164 1.184 0.666 0.686 0.577 0.597 0.612 0.632 5.045 5.065 3 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 4 0.660 0.680 | 0.545 | 0.565 1.184 1.204 0.686 0.706 0.597 0.617 0.632 0.652 5.065 | 5.085 5 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 0.662 5.075 5.095 6 0.680 0.700 0.565 0.585 1.204 1.224 0.706 0.726 0.617 0.637 0.652 0.672 1.214 1.234 0.716 0.736 0.627 0.647 0.662 0.682 5.095 5.115 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 1.234 1.254 | 0.736 0.756 0.647 0.667 0.682 0.702 5.115 5.135 1.244 1.264 0.746 0.766 0.657 0.677 0.692 0.712 5.125 5.145 7 0.690 0.710 0.575 0.595 8 0.700 0.720 0.585 0.605 9 0.710 0.730 0.595 0.615 10 0.720 0.740 0.605 0.625 5.085 5.105 Other summarised information: United Kingdom subsidiary profits generated quarterly: Import cost of equipment/machinery for the manufacturing of electronic components in the U.S.A: 500,000 63,000,000 Period of time that the components can be paid (in years) 3 Number of payments per year Amount of each payment: 4 5,250,000