i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2%...

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i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2% per annum. The ASX 90-day bank bill futures maturing in 90-days quoted as 95.4. (a) Show that there is an arbitrage opportunity. (b) By constructing the appropriate arbitrage portfolio, determine the profit per $100,000 face value of the 90-day bank bill. ii. A Company A, an Australian manufacturer, needs a 3-year US dollar fixed rate loan, and company B, a US multinational needs a 3-year Australian dollar fixed rate loan. They have been quoted the following 3-year semiannually compounded rates: AUD USD Company A Company B 5.1% 4.8% 4.9% 4.4% Updated (a) Design a swap that will net the bank, acting as an intermediary, 10 basis points and provide the remaining benefit evenly to the two companies. The bank assumes all the exchange rate risk. (b) Suppose that the semiannually compounded rates in Australia are 4.6% for all maturities and that the corresponding rates in the US are 4.2% for all maturities. If the current USD/AUD exchange rate is 0.52, and the swap principals are AUD$20 million and USD$10 million, then what is the value of the swap (with the bank) to company A? i. The 90-day bank bill rate is 4% per annum and the 180-day rate is 4.2% per annum. The ASX 90-day bank bill futures maturing in 90-days quoted as 95.4. (a) Show that there is an arbitrage opportunity. (b) By constructing the appropriate arbitrage portfolio, determine the profit per $100,000 face value of the 90-day bank bill. ii. A Company A, an Australian manufacturer, needs a 3-year US dollar fixed rate loan, and company B, a US multinational needs a 3-year Australian dollar fixed rate loan. They have been quoted the following 3-year semiannually compounded rates: AUD USD Company A Company B 5.1% 4.8% 4.9% 4.4% Updated (a) Design a swap that will net the bank, acting as an intermediary, 10 basis points and provide the remaining benefit evenly to the two companies. The bank assumes all the exchange rate risk. (b) Suppose that the semiannually compounded rates in Australia are 4.6% for all maturities and that the corresponding rates in the US are 4.2% for all maturities. If the current USD/AUD exchange rate is 0.52, and the swap principals are AUD$20 million and USD$10 million, then what is the value of the swap (with the bank) to company A?

Answer rating: 100% (QA)

ANSWER i Arbitrage Opportunity a First lets calculate the implied 90day rate from the futures contra... View the full answer