US Company recently issued 250M of five-year fixed rate debt at 4% p.a. US Co. will...

  

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US Company recently issued €250M of five-year fixed rate debt at 4% p.a. US Co. will pay interest annually for each of the next five years. Swap Bank is posting five- year €/$ swap rates of $1.1879-$1.1888. Show US Co.'s annual cash flows for each of the next five years if it enters a swap with Swap Bank. Gigantic Stock Fund ("GSF") manages $100 billion on behalf of its clients. GSF is concerned that the stock markets are becoming overvalued and may be headed for a 10-20% correction. GSF wishes to hedge a portion of its portfolio against such a correction. Is GSF naturally long or short stocks? How would GSF implement a hedge using the futures market? US Company recently issued €250M of five-year fixed rate debt at 4% p.a. US Co. will pay interest annually for each of the next five years. Swap Bank is posting five- year €/$ swap rates of $1.1879-$1.1888. Show US Co.'s annual cash flows for each of the next five years if it enters a swap with Swap Bank. Gigantic Stock Fund ("GSF") manages $100 billion on behalf of its clients. GSF is concerned that the stock markets are becoming overvalued and may be headed for a 10-20% correction. GSF wishes to hedge a portion of its portfolio against such a correction. Is GSF naturally long or short stocks? How would GSF implement a hedge using the futures market?

Answer rating: 100% (QA)

US Companys Annual Cash Flows with Swap Bank US Company issued 250 million of fiveyear fixedrate deb... View the full answer