The subsidiary in Australia generates a significant amount of profit, which can be utilized to fund the import

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Question 3

The subsidiary in Australia generates a significant amount of profit, which can be utilized to fund the import of manufacturing equipment from South Korea for the electronic component plant in Singapore. The CEO has initiated negotiations with the South Korean equipment supplier, who is willing to offer XYZ a payment period of 3 years. However, the payments must be made through quarterly installments of 62,000,000 WON by the Australia subsidiary. To facilitate this arrangement, the CEO has requested the construction of a currency swap that enables the utilization of the Australia subsidiary's profits to cover the equipment costs. To proceed with the three-year currency swap, you will apply the swap bank quotes. Additionally, a graphical representation of the swap will be provided to help the CEO visualize how the swap arrangement will function. Relevant information required for these calculations and the graphical representation is provided below:

Exchange rates: Spot
Bid Ask
SGD/JPY 0.0094 0.0095
SGD/Won 0.0006 0.0008
SGD/CAD 0.7614 0.7616
SGD/GBP 1.3034 1.3038
SGD/AUD 0.7225 0.7226
SGD/ZAR 0.0606 0.0607

 

Current borrowing interest rates on loans: Fixed Libor
Singapore 0.640% 0.130%
Japan 0.525% 0.015%
South Korea 1.164% 0.654%
Canada 0.666% 0.156%
UK 0.577% 0.067%
Australia 0.612% 0.102%
South Africa 5.045% 4.535%

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