Apple is a US-based multinational company and would like to borrow fixed-rate Japanese yen, whereas Toshiba...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Apple is a US-based multinational company and would like to borrow fixed-rate Japanese yen, whereas Toshiba is a Japan-based multinational company and would like to borrow floating-rate US dollars, Apple can borrow fixed-rate yen at 3.4% or floating rate dollars at LIBOR +0.2%. Toshiba can borrow fixed- rate yen at 3.6% or floating-rate dollars at LIBOR +0.8%. 1) Provide possible explanations why Apple would like to borrow fixed-rate yen, while Toshiba would like to borrow floating-rate dollars. 2) In which market does each company have a comparative advantage and what is the maximum possible cost saving to Apple from engaging in a currency swap with Toshiba? 4) Construct a swap arrangement of yen and dollar that will enable the two firms to split the cost savings equally. If the credit rating for Apple is higher than Toshiba, how does this affect Apple's benefit from the swap in general? 5) Citi-bank has offered a swap arrangement to both companies with a fee of 0.1%. What is the benefit for the companies to accept the offer from Citi-bank, instead of engaging the swap directly? In this case, what would be their effective interest rate under a swap if they split the cost savings equally? 6) Is the rate for Apple truly fixed? Are swaps as risky as equivalent-sized loans for financial institutions? Why do Apple and Toshiba use Citi-bank and pay them 0.1%? Explain your answers. Apple is a US-based multinational company and would like to borrow fixed-rate Japanese yen, whereas Toshiba is a Japan-based multinational company and would like to borrow floating-rate US dollars, Apple can borrow fixed-rate yen at 3.4% or floating rate dollars at LIBOR +0.2%. Toshiba can borrow fixed- rate yen at 3.6% or floating-rate dollars at LIBOR +0.8%. 1) Provide possible explanations why Apple would like to borrow fixed-rate yen, while Toshiba would like to borrow floating-rate dollars. 2) In which market does each company have a comparative advantage and what is the maximum possible cost saving to Apple from engaging in a currency swap with Toshiba? 4) Construct a swap arrangement of yen and dollar that will enable the two firms to split the cost savings equally. If the credit rating for Apple is higher than Toshiba, how does this affect Apple's benefit from the swap in general? 5) Citi-bank has offered a swap arrangement to both companies with a fee of 0.1%. What is the benefit for the companies to accept the offer from Citi-bank, instead of engaging the swap directly? In this case, what would be their effective interest rate under a swap if they split the cost savings equally? 6) Is the rate for Apple truly fixed? Are swaps as risky as equivalent-sized loans for financial institutions? Why do Apple and Toshiba use Citi-bank and pay them 0.1%? Explain your answers.
Expert Answer:
Answer rating: 100% (QA)
1 Possible explanations for Apples preference to borrow fixedrate yen Apple may have a more conservative risk management approach and prefers fixedrat... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
1. Hannah is applying for a life policy on her girlfriend Sarahs life. The policy is $500,000 and carries a large premium. Hannah is the main earner, so she is concerned about not being able to pay...
-
Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required:...
-
In Exercises 7683, use a graphing utility to graph the function. Use the graph to determine whether the function has an inverse that is a function (that is, whether the function is one-to-one). f(x)...
-
What are the four major categories or sources of product differentiation? Discuss.
-
Rework problem 11-27 assuming that the model the engineer wishes to fit is a quadratic. Obviously, only designs 2, 3, and 4 can now be considered. Problem 11-27 A chemical engineer wishes to fit a...
-
Trial weight runs have been completed, and the final weight calls for approximately 150 g. Using -inch plate steel, what size piece should be cut if a -inch welding rod is to be used for attaching...
-
Medina Co., Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The unadjusted and adjusted trial balances as of September 30 are shown below. Instructions (a) Journalize...
-
Suppose a bank currently has $240,000 in deposits and $23,000 in reserves. The required reserve ratio is 13%. If at the end of the day, there is an unexpected withdrawal of $4,000 in reserves, what...
-
1.Given examples of integers and rational numbers, students will identify and label a s et of 10 numbers, integers, and rational numbers with 85% accuracy. 2. Given the peer-partner grouping,...
-
Purchase price of the equipment is $460,000. This is a 7 year MACRS asset. Use MACRS method of depreciation. Provide a deprecation schedule for the first four years of the asset. Year Purchase Price...
-
Evaluate using the Change of Base Formula. Express in terms of a common or natural logarithm, then round to 3 decimal places. log, 50 = log(50) / log(3) 3.560
-
Suppose, you want to start a small business. prepare at least 5 slides on what is your small business and outline some of the requirements to create and maintain it. What are few strategies to become...
-
A new employee at an organization has trouble accurately filling out the forms they are required to complete for her/his job. It would be correct to say this is caused by a lack of motivation and...
-
Based on the figure (-)'(0)
-
What does a statement "Although the income statement is a record of past achievement, the calculations required for certain expenses to involve estimates of the future' mean? Also, give examples of...
-
Find the intercepts and then graph the line. (a) 2x - 3y = 6 (b) 10 - 5x = 2y
-
Suppose that there are no storage costs for crude oil and the interest rate for borrowing or lending is 5% per annum. How could you make money if the June and December futures contracts for a...
-
An index provides a dividend yield of 1% and has a volatility of 20%. The risk-free interest rate is 4%. How long does a principal-protected note, created as in Example 11.1, have to last for it to...
-
What is the price of a European call option on a non-dividend-paying stock when the stock price is $52, the strike price is $50, the risk-free interest rate is 12% per annum, the volatility is 30%...
-
Maribel Ortiz is puzzled. Her company had a profit margin of 10% in 2025. She feels that this is an indication that the company is doing well. Gordon Liddy, her accountant, says that more information...
-
At December 31, 2025, the fair value of non-trading securities is 41,300 and the cost is 39,800. At January 1, 2025, there was a credit balance of 900 in the Fair Value Adjustment Non-Trading...
-
On January 1, 2025, Lennon Enterprises acquires 100% of Ono Ltd. for 220,000 in cash. The condensed statements of financial position of the two companies immediately following the acquisition are as...
Study smarter with the SolutionInn App