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  • Problem Set #4

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    Oxky Setiawan Wibisono
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    PT Ultra Jaya is considering two financing proposals: a $1 million loan from Goldman Sachs with a 5% annual interest rate or a Rp10 billion loan from BNI Bank with a 15% annual interest rate. Given the current exchange rate and inflation rates in Indonesia and the US, the assistant must evaluate which financing proposal is better and make a recommendation.

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    PT Ultra Jaya is considering two financing proposals: a $1 million loan from Goldman Sachs with a 5% annual interest rate or a Rp10 billion loan from BNI Bank with a 15% annual interest rate. Given the current exchange rate and inflation rates in Indonesia and the US, the assistant must evaluate which financing proposal is better and make a recommendation.

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    © All Rights Reserved
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    121 views2 pages

    Problem Set #4

    Uploaded by

    Oxky Setiawan Wibisono
    PT Ultra Jaya is considering two financing proposals: a $1 million loan from Goldman Sachs with a 5% annual interest rate or a Rp10 billion loan from BNI Bank with a 15% annual interest rate. Given the current exchange rate and inflation rates in Indonesia and the US, the assistant must evaluate which financing proposal is better and make a recommendation.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    PROBLEM SET #4

    1. PT Ultra Jaya is considering two financing proposals:

    Loan from Goldman Sach: $1 million, coupon rate of 5%, paid at the end of year,
    one-year duration
    Loan from BNI Bank: Rp10 billion, coupon rate of 15%, duration of one year,
    interest and principal are paid at the end of year.

    Suppose spot rate is Rp9,000/$. Interest rate in Indonesia and US are 10% and 5%
    respectively. Inflation in Indonesia and US are 8% and 4% respectively. Evaluate the two
    financing proposals, which one you recommend?

    2.
    a. Suppose an MNC predicts that Rupiah is going to depreciate against US$. Should the
    asset of Indonesian subsidiary be reduced or increased? Explain.

    b. In an efficient market, is the action in (a) above will work? Explain.

    3. MNC from Denmark feels that their cost of capital is too high. To be able to compete
    with other MNCs, internationaization of cost of capital was introduced.
    a. Explain carefully why internationalizing cost of capital leads to lower cost of
    capital.
    b. Show how to observe empirically that such objective is reached.

    4.
    a. Explain main difference(s) between eurocurrency loans and eurobonds.
    b. Explain eurodollar market, why is this market growing fast?

    5. Suppose we have the following information:


    Lending Borrowing
    US 3.2% 4.0%
    UK 3.0% 3.6%
    Explain, in what situation fund is lead from US to UK.

    6. Explain how parallel loan or back to back loan can be used to circumvent capital
    restriction.

    7. Comment on the following statement, One should borrow in those currencies expected
    to depreciate and invest in those expected to appreciate. (hints: relate to efficient market)

    8. Explain the following statement. The growth of Eurobond has been largely driven by
    swap transaction.

    9. Tiger Car, a Japanese car manufacturer, is pondering to move its factory to US. Labor
    cost would rise by Yen33,000 per-car. The time in transit will be reduced by 65 days. Tiger
    car sells for Yen 82,500 and Tiger cost of fund is 12.5%. Should they move the plant to
    US?
    10. Explain:
    a. Forfaiting
    b. Countertrade
    c. Securitization

    11. Merlin Corp of the US imports raw material from Indonesia on terms of 2/10 net 30.
    Merlin expects a 36% devaluation of the Indonesian Rupiah at any moment. Should
    Merlin take discount? Discuss aspects of the problem.

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