Suppose Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75–8.

10 per-cent annually against six-month dollar LIBO

dollars and 11.25–11.65 per-cent annually against six-month dollar LIBOR for British pound sterling. At what rates will Mo
Guaranty enter into a $/£ currency swap?

7.75% 8.10% Pagará 7.75% 6 meses dólar LIBOR en dólares para recibir 11.65% 6 meses dólar LIB
11.25% 11.65% dolares vs pagar al 11.65% libras
ly against six-month dollar LIBOR for
sterling. At what rates will Morgan

ecibir 11.65% 6 meses dólar LIBOR en libras O recibirá al 8.10%

pagar al 11.65% libras
 Alpha
Moodys Aa
Fixed rate 10.50%
Floating rate LIBOR

10.50%
LIBOR + 1%
 Beta
Baa
12% 1.500%
LIBOR + 1% 1%
a) 0.50%

b)
10.50% 12%-1 10.75%
LIBOR LIBOR

LIBOR -10.75% = LIBOR -0.25% FIXED RATE

10.75% MENOS LIBOR 11.75% FLOATING RARE
 Rone Company asks Paula Scott, a treasury analyst, to recommend a flexible way to manage the company’s financial risk
(U.S.$), five-year floating-rate note (FRN). The FRN pays an annual coupon equal to one-year LIBOR plus 75 basis points. Th
at maturity. Scott expects interest rates to increase, and she recognizes that Rone could pro-tect itself against the increase
board of directors prohibits both short sales of securities and swap transactions. Scott decides to replicate a pay-fixed sw
instruments. a. Identify the instruments needed by Scott to replicate a pay-fixed swap and describe th

b. Explain how the transactions in part a are equivalent to using a pay-fixed swap.

Instrumentos requeridos:
Bono con cupón fijo a 3 años por 25 millones
Comprar 25 millones FRN donde se recibe LIBOR+0.75
 ge the company’s financial risks. Two years ago, Rone issued a $25 million
r LIBOR plus 75 basis points. The FRN is noncallable and will be repaid at par
-tect itself against the increase by using a pay-fixed swap. However, Rone’s
cides to replicate a pay-fixed swap using a combination of capital market
pay-fixed swap and describe the required transactions.
Why do investors invest the lion’s share of their funds in domestic securities?

Para evitar complicaciones de inversiones en extranjero, volatilidad en tipos de cambio o crisis, así como cost
transacción o impuestos distintos
e cambio o crisis, así como costos de
Mr. James K. Silber, an avid international investor, just sold a share of Nestlé, a Swiss firm, for SF5,080. The share was boug
SF4,600 a year ago. The exchange rate is SF1.60 per U.S. dollar now and was SF1.78 per dollar a year ago. Mr. Silber recei
SF120 as a cash dividend immediately before the share was sold. Compute the rate of return on this investment in terms o
dollars.
vta acción compra acción

SF $ 5,080.00 $ 4,600.00
TC SF/$usd $ 1.60 1.78

dividendo $ 120.00

PAGO RECIBIO
$ 2,584.27 $ 3,250.00
25.76%
or SF5,080. The share was bought for
llar a year ago. Mr. Silber received
n on this investment in terms of U.S.