Ms. Siva Sanggari, Treasurer of CITY Finance Berhad, has just completed a Maturity Bucket Analysis based...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ms. Siva Sanggari, Treasurer of CITY Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. (a) (b) (C) Month RSA (RM million) RSL (RM million) GAP (RM million) 1 44 52 -8 2 168 160 +8 3 4 160 120 220 120 -60 0 3-month KLIBOR 6-month KLIBOR If the market expectation is increase in interest rates, find the maturity bucket should Ms. Siva Sanggari worries most about. Explain why the particular bucket matters. (5 marks) Outline an appropriate hedge strategy for Ms. Siva Sanggari. Suppose the following quotes are available. Spot 1-month KLIBOR = 4.0 percent = 5.5 percent = 6.0 percent 5 6 144 240 128 170 +16 +70 Futures Maturing in 1-month KLIBOR futures = 95.5 3-month KLIBOR futures = 93.0 Maturing in 6-month KLIBOR futures = 92.5 Total 876 850 +26 (5 marks) i. Calculate interest rate Ms. Siva Sanggari 'lock-in' using your strategy in (b). (5 marks) ii. Assuming the 3-month KLIBOR is up to 1.5 percent over the period of your strategy, prove mathematically that Ms. Siva Sanggari is hedged and has locked-in her cost funds. (10 marks) Ms. Siva Sanggari, Treasurer of CITY Finance Berhad, has just completed a Maturity Bucket Analysis based on the a 6-month horizon. (a) (b) (C) Month RSA (RM million) RSL (RM million) GAP (RM million) 1 44 52 -8 2 168 160 +8 3 4 160 120 220 120 -60 0 3-month KLIBOR 6-month KLIBOR If the market expectation is increase in interest rates, find the maturity bucket should Ms. Siva Sanggari worries most about. Explain why the particular bucket matters. (5 marks) Outline an appropriate hedge strategy for Ms. Siva Sanggari. Suppose the following quotes are available. Spot 1-month KLIBOR = 4.0 percent = 5.5 percent = 6.0 percent 5 6 144 240 128 170 +16 +70 Futures Maturing in 1-month KLIBOR futures = 95.5 3-month KLIBOR futures = 93.0 Maturing in 6-month KLIBOR futures = 92.5 Total 876 850 +26 (5 marks) i. Calculate interest rate Ms. Siva Sanggari 'lock-in' using your strategy in (b). (5 marks) ii. Assuming the 3-month KLIBOR is up to 1.5 percent over the period of your strategy, prove mathematically that Ms. Siva Sanggari is hedged and has locked-in her cost funds. (10 marks)
Expert Answer:
Answer rating: 100% (QA)
a The maturity bucket Ms Siva Sanggari should be most worried about is the 6month bucket This is bec... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
Students also viewed these finance questions
-
The world's largest carpet maker has just completed a feasibility study of what to do with the 16,000 tons of overruns, rejects, and remnants it produces every year. The company's CEO launched the...
-
The world's largest carpet maker has just completed a feasibility study of what to do with the 16,000 tons of overruns, rejects, and remnants it produces every year. The company's CEO launched the...
-
A sudden increase in interest rates in the European Union would likely lead to both depreciation of the U.S. dollar and upward pressure on U.S. interest rates. Agree? Disagree? Why?
-
Why must Microsoft report this charge of over $1billion entirelyin one quarter, the last quarter of the company's physicalyear? From an accounting point of view, what willMicrosoft do in the futur?
-
What is a psychogalvanometer?
-
Sunny Technologies Inc. began operations on January 1, 2019. Its post-closing trial balance at December 31, 2019, and 2020 is shown below along with some other information. Other information...
-
Assume that Fossil paid expenses totaling \($40,000\). How does this transaction affect Fossils accounting equation? a. Increases assets and decreases liabilities b. Decreases assets and increases...
-
At the beginning of November, Yoshi Inc.s inventory consists of 60 units with a cost per unit of $94. The following transactions occur during the month of November. November 2 Purchase 90 units of...
-
Galaviz Company's quality cost report is to be based on the following data: Net cost of spoilage Test and inspection of in-process goods Supplies used in testing and inspection Quality engineering...
-
Situation Russell International, a publicly traded company, reacquired 500,000 shares of its common stock during July 2008 at a cost of $25 per share. The current market price of the stock was $20...
-
A . The company "MIKRA SHIPYARDS" manufactures small sailing ships following orders from its customers. The production process is organized into two main and two auxiliary departments. The main...
-
Discuss the importance of validity and research design. Next, choose one type of validity (internal, external, construct, or statistical conclusion) and discuss its relevance to experimental, quasi...
-
What is the major difference between a cross-sectional and a longitudinal design?
-
Define a sampling strategy.
-
Describe some of the threats to external validity that are common with the survey approach.
-
Define the two major types of sampling strategies .
-
(8) If you were able to make a recommendation regarding an exchange rate regime to adopt for the international community, explain why you will choose either a fixed exchange rate system or a freely...
-
The liquidliquid extractor in Figure 8.1 operates at 100F and a nominal pressure of 15 psia. For the feed and solvent flows shown, determine the number of equilibrium stages to extract 99.5% of the...
-
What is the conventional B-C ratio for the flood control project? (a) 1.53 (b) 1.33 (c) 1.76 (d) 2.20 (e) 4.80 A flood control project with a life of 16 years will require an investment of $60,000...
-
A concrete and rock crusher for demolition work has been purchased for $60,000, and it has an estimated SV of $10,000 at the end of its five-year life. Engineers have estimated that the following...
-
In this problem, we consider replacing an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,400 ($2,000 less a 30% tax credit from...
-
Four identical rigid bars-each of length \(a\) - are connected to a spring of stiffness \(k\) to form a structure for carrying a vertical load \(P\), as shown in Figs. 1.72 (a) and (b). Find the...
-
A cantilever beam of length \(L\) and Young's modulus \(E\) is subjected to a bending force at its free end. Compare the spring constants of beams with cross sections in the form of a solid circle...
-
A bar of length \(L\) and Young's modulus \(E\) is subjected to an axial force. Compare the spring constants of bars with cross sections in the form of a solid circle (of diameter \(d\) ), square (of...
Study smarter with the SolutionInn App