Question 3

A client has four financial instruments to identify and evaluate. The following figure shows the numerical details. He lost the document that described their classification and prices. He engages your consultation service to identify the financial asset class/instrument category that these financial instruments belong to, their characteristics and ultimately calculate their prices in SGD (Singapore Dollar).

Currency	SGD	EUR	SGD	USD
Yearly Cost of Borrowing	4%	3%	4%	2%
Yield Curves are flat for all countries

Years	Financial Instrument 1	Financial Instrument 2	Financial Instrument 3	Financial Instrument 4
1	$0	$1,900	$2,500	$0
2	$0	$1,500	$2,500	$0
3	$0	$2,100	$2,500	$0
4	$0	$1,800	$2,500	$0
5	$100,000	$102,000	$102,500	$103,000

EUR = The Euro

USD = United States Dollar

SGD = Singapore Dollar

Spot prices (mid)

EUR/USD 1.14

USD/SGD 1.35

Notation

USD/SGD is in SGD per USD

(a) Indicate, for the the above-mentioned instruments, whether each instrument is a Floating Rate Note (FRN), Fixed Deposit (FD), Fixed Rate Bond (FRB) or ZeroCoupon Bond (ZCB), with suitable reasons. (12 marks)

(b) Solve for the mid-spot price of EUR/SGD (in SGD per EUR). Round off to two decimal places. (3 marks)

(c) Solve for the current (spot) prices of each financial instrument in their respective currency using the relevant Microsoft Excel function. Show the Excel functions involved. All answers should be expressed in the original currency and round off to two decimal places.

(d) Convert the current (spot) price of financial instrument in EUR (namely, the financial instrument 2) to SGD and round off to two decimal places. (2 marks)