--%>
Assignment Help - homework help

Question on nominal rate

Suppose a currency swap wherein two counterparties of comparable credit risk each borrow at the best rate obtainable, yet the nominal rate of one counterparty is greater than the other. After the primary principal exchange, is the counterparty i.e. required to make interest payments at the higher nominal rate at financial disadvantage to the other in the swap agreement? Describe your thinking.
Superficially, it may seem that the counterparty paying the higher nominal rate is at a disadvantage as it has borrowed at a lower rate. Though, if the forward rate is an unbiased predictor of the expected spot rate & if IRP holds, then the currency along with the higher nominal rate is expected to depreciate versus the other. In this case, the counterparty making the interest payments at the higher nominal rate is effectively making interest payments at the lower interest rate since the payment currency is depreciating in value versus the borrowing currency.

   Related Questions in Financial Management

  • Q : Who measured risk as coherent in

    Who measured risk as coherent, in finance theory?

    		•
  • Q : Calculate the weighted average cost of

    Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding,

    		•
  • Q : Describe the three major trend in

    Describe the three major trends which have prevailed in international business at the time the last two decades.The 1980s brought a quick integration of international capital & financial markets. Impetus for globalized financial markets prim

    		•
  • Q : Why do analysts calculate financial

    Why do analysts calculate financial ratios?

    		•
  • Q : Illustrates an example of

    Illustrates an example of Efficient-market hypothesis?

    		•
  • Q : Remark on bretton Woods system One can

    One can state that the Bretton Woods system was programmed to an eventual demise. Remark on this proposition.The answer to this question is associated to the Triffin paradox. Under gold-exchange system, the reserve-currency country must run BOP

    		•
  • Q : Cross-list equity shares on more than

    Explain any benefits you can think of for any company to cross-list its equity shares on more than one national exchange?A MNC that has a product market presence or manufacturing facilities in many countries may cross-list its shares on the exch

    		•
  • Q : Define the term Leveraged Buy-Out or LBO

    Leveraged Buy-Out (LBO): It is a specific kind of acquisition in which the takeover of the controlling interest in a company is prepared by employing a noteworthy amount of borrowed capital from the banks and or capital markets. Inter

    		•
  • Q : Inernational portfolio manangement 5.

    5. What are the factors responsible for the recent surge in international portfolio investment? plz explain in 20 marks

    		•
  • Q : Explain different useful tools in

    Explain different useful tools in Quantitative Finance.

    		•