Chapter 11, Pg 296 & 297 Questions 1 - 8
Chapter 11, Pg 297 Problems 2, 3, & 6
Chapter 12, Pg 324 Questions 2, 5, 6, & 7
Chapter 12, Pg 322 Problem 2
Chapter 11
Question 1
Briefly discuss some of the services that international banks provide their customers and the market place.
Question 2
Briefly discuss the various types of international banking offices.
Question 3
How does the deposit-loan rate spread in the Eurodollar market compare with the deposit-loan rate spread in the domestic U.S. banking system? Why?
Question 4
What is the difference between the Euronote market and the Eurocommercial paper market?
Question 5
Briefly discuss the cause and the solution(s) to the international bank crisis involving less-developed countries.
Question 6
What are the approaches available to an internationally active bank for valuing its credit risk under Basel II.
Question 7
Briefly discuss structured investment vehicles (SIVs).
Question 8
Briefly discuss collateralized debt obligations (CDOs).
PROBLEMS
Problem 2
A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.5 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4 7/8 percent. Determine how much the FRA is worth and who pays who--the buyer pays the seller or the seller pays the buyer.
Problem 3
Assume the settlement rate in problem 2 is 6 1/8 percent. What is the solution now?
Problem 6
The Fisher effect (Chapter 6) suggests that nominal interest rates differ between countries because of differences in the respective rates of inflation. According to the Fisher effect and your examination of the one-year Eurocurrency interest rates presented in Exhibit 11.3, order the currencies from the eight countries from highest to lowest in terms of the size of the inflation premium embedded in the nominal interest rates for March 3, 2005.
Chapter 12
Question 2
Briefly define each of the major types of international bond market instruments, noting their distinguishing characteristics.
Question 5
Discuss the process of bringing a new international bond issue to market.
Question 6
You are an investment banker advising a Eurobank about a new international bond offering it is considering. The proceeds are to be used to fund Eurodollar loans to bank clients. What type of bond instrument would you recommend that the bank consider issuing? Why?
Question 7
What should a borrower consider before issuing dual-currency bonds? What should an investor consider before investing in dual-currency bonds?
PROBLEMS
Problem 2
Consider 8.5 percent Swiss franc/U.S. dollar dual-currency bonds that pay $666.67 at maturity per SF1,000 of par value. What is the implicit SF/$ exchange rate at aturity? Will the investor be better or worse off at maturity if the actual SF/$ exchange rate is SF1.35/$1.00?
