Exchange rates: Ask S/JPY s/Won S/CAD $ = 1 + S/AUS S/ZAR Spat Bid 0.0094 0.0006 0.7611 1.3034 0.7225 0.0606 0.0095 0.0009 0.7616 1.30138 0.7226 a. 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 High Tech, but the payments must be con- ducted 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. 0.0507 Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values below: (6 marks) Current borrowing interest rates on loans USA Japan South Korea Canada UK Australia South Africa Fixed 0.6-10 0.5255 1.169% 0.66% 0.577% 0.6125 5.015% ibar 0.130% 0.0155 0.654% 0.156% 0.067% 0.1025 1.5355 Japanese exporter Swap bank UK subsidiary National Yen swap principal Notional GOP swap Yen notional principal - GBD notional principal - BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Yen Won CADS Years Bid Ask Bid Ask Bidx Ask% Bid%Ask% 1 CI.GRD 0.05.01 0.515 0,95 1.154 1.174 D. (1.670 20.640 D.I.CI 0.525 0...45 1.164 1.194 0.6 0. 3 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.60 0.680 0.545 0.565 1.184 1.204 0.686 0.706 5 0.620 0.690 0.555 0.575 1.190 1.214 0.695 0.716 (1.680 0.700 0561 0.525 1.204 1.224 0.706 (1.726 CI.600 0.7101 02575 0.595 1.214 1.224 0.716 (1.730 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.710 0.720 0.59 0.615 1.234 1.254 0.736 0.750 10 0.720 0.240 0.605 0.625 1.244 1.264 0.746 0.766 GBP AUS ZAR Bid Ask% Did% Ask% Bid% Ask 0.587 D.002 0.627 5.135 0.012 0.032 ' 5.065 0.587 0.607 0.622 0.642 5.055 5.075 0.597 0.617 0.632 0.652 5.065 5.085 0.607 0.627 0.642 0.662 5.075 5.095 0.617 0.637 D.657 D.172 5.ORG 5.105 0.687 5.095 5.115 0.637 0.657 0.672 0.692 5.105 5.125 0.647 0.667 0.682 0.702 5.215 5.195 0.657 0.627 0.692 0.712 5.125 5.145 b. Explain to the CEO what forfaiting is, why it is possible that forfaiting of the transaction can occur and the implication that it will have on the swap transaction. (4 marks ) Provide your answers in space provided below: Question Your answer 500,000 463,000,000 What is forfaitiru? (Give an cxplanation). (3 marks) Other summarised information: United Kinpduin subsidiary prolis generated quarterly: Impor custol equipment machinery for the manufacturingul electronic components in the U.S.A: Period of time that the components can be paid (in years) Number of payments per year Amount of each payment: 3 Why can furfaiting occur? (1 mark) X1,250,000 Implication on the swap transaction State whether it impacts the swap or not and the reason for it. (1 mark) Question 3: (16 marks) Exchange rates: Ask S/JPY s/Won S/CAD $ = 1 + S/AUS S/ZAR Spat Bid 0.0094 0.0006 0.7611 1.3034 0.7225 0.0606 0.0095 0.0009 0.7616 1.30138 0.7226 a. 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 High Tech, but the payments must be con- ducted 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. 0.0507 Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values below: (6 marks) Current borrowing interest rates on loans USA Japan South Korea Canada UK Australia South Africa Fixed 0.6-10 0.5255 1.169% 0.66% 0.577% 0.6125 5.015% ibar 0.130% 0.0155 0.654% 0.156% 0.067% 0.1025 1.5355 Japanese exporter Swap bank UK subsidiary National Yen swap principal Notional GOP swap Yen notional principal - GBD notional principal - BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE Yen Won CADS Years Bid Ask Bid Ask Bidx Ask% Bid%Ask% 1 CI.GRD 0.05.01 0.515 0,95 1.154 1.174 D. (1.670 20.640 D.I.CI 0.525 0...45 1.164 1.194 0.6 0. 3 0.650 0.670 0.535 0.555 1.174 1.194 0.676 0.696 0.60 0.680 0.545 0.565 1.184 1.204 0.686 0.706 5 0.620 0.690 0.555 0.575 1.190 1.214 0.695 0.716 (1.680 0.700 0561 0.525 1.204 1.224 0.706 (1.726 CI.600 0.7101 02575 0.595 1.214 1.224 0.716 (1.730 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.710 0.720 0.59 0.615 1.234 1.254 0.736 0.750 10 0.720 0.240 0.605 0.625 1.244 1.264 0.746 0.766 GBP AUS ZAR Bid Ask% Did% Ask% Bid% Ask 0.587 D.002 0.627 5.135 0.012 0.032 ' 5.065 0.587 0.607 0.622 0.642 5.055 5.075 0.597 0.617 0.632 0.652 5.065 5.085 0.607 0.627 0.642 0.662 5.075 5.095 0.617 0.637 D.657 D.172 5.ORG 5.105 0.687 5.095 5.115 0.637 0.657 0.672 0.692 5.105 5.125 0.647 0.667 0.682 0.702 5.215 5.195 0.657 0.627 0.692 0.712 5.125 5.145 b. Explain to the CEO what forfaiting is, why it is possible that forfaiting of the transaction can occur and the implication that it will have on the swap transaction. (4 marks ) Provide your answers in space provided below: Question Your answer 500,000 463,000,000 What is forfaitiru? (Give an cxplanation). (3 marks) Other summarised information: United Kinpduin subsidiary prolis generated quarterly: Impor custol equipment machinery for the manufacturingul electronic components in the U.S.A: Period of time that the components can be paid (in years) Number of payments per year Amount of each payment: 3 Why can furfaiting occur? (1 mark) X1,250,000 Implication on the swap transaction State whether it impacts the swap or not and the reason for it. (1 mark) Question 3: (16 marks)