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Exchange rates: Ask $/JPY $/Won $/CAD $/GBP $/AU$ $/ZAR Spot Bid 0.0094 0.0006 0.7614 1.3034 0.7225 0.0606 0.0095 0.0008 0.7616 1.3038 0.7226 0.0607 Current borrowing interest rates on loans: Fixed Libor 0.130% USA Japan South Korea Canada UK Australia South Africa 0.640% 0.525% 1.164% 0.666% 0.577% 0.612% 5.045% 0.015% 0.6549 0.156% 0.067% 0.102% 4.535% NI BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE $ Yen Won CAD$ GBP AUS ZAR Years Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% 1 0.6300.650 0.515 0.535 1.154 1.174 0.656 0.676 0.567 0.587 0.602 0.6225.035 5.055 0.640 0.660 0.525 0.545 1.164 | 1.184 0.666 0.686 0.577 0.597 0.612 0.632 5.045 5.065 30.650 0.670 0.535 0.555 1.174 1.1940.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 40.660 0.680 0.545 0.565 1.184 1.204 0.686 0.706 0.597 0.617 0.632 0.652 5.065 5.085 5 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 0.662 5.075 5.095 60.680 0.7000.565 0.585 1.204 1.224 0.706 0.726 0.617 0.637 0.652 0.672 5.085 5.105 70.690 0.7100.575 0.595 1.214 1.234 0.716 0.736 0.627 0.647 0.662 0.682 5.095 5.115 8 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 9 0.710 0.730 0.595 0.615 1.234 1.254 0.736 0.756 0.647 0.667 0.682 0.702 5.115 5.135 100.720 0.740 0.605 0.625 1.244 1.264 0.746 0.766 0.657 0.677 0.692 0.712 5.125 5.145 Other summarised information: United Kingdom subsidiary profits generated quarterly: Estimated 30% share profit in South African plant per month: Capital cost of new electric tool plant in South Africa: Capital cost of expanding existing plant in South Africa to electronic component manufacturing and electric tool manufacturing: 500,000 R2,000,000 R150,000,000 R120,000,000 Question 3: (16 marks) The CEO considers the investment in South Africa by entering into an agreement with Electo Co to expand the existing plant by investing ZAR120,000,000. The CEO believes Midtech should borrow the funds in USS at a fixed rate from a bank in the U.S.A. and convert it into ZAR for investment. For this purpose a 5 year (60 month) currency swap transaction will be required. He wants to be provided with a 5 year currency swap proposal. Also depict the swap graphically for the CEO to see how the swap will work Workings: Show the figures that should Marks be applied in this column ZAR to be invested: 1 mark Spot exchange rate to purchase ZAR for investment: 1 mark Borrowing rate in U.S.A. to be used: 1 mark Value in US$ to be borrowed: 1 mark Swap transaction: Marks In which currency is the swap payment? e.g. in USS or ZAR State whether the payment is Fixed or Libor State the percentage (%) of the payment MidTech pays swap bank MidTech pays swap bank MidTech receives from swap bank MidTech receives from swap bank 1 mark 1 mark 1 mark 1 mark Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values in all the arrows below: 8 marks (1 mark for each correct insertion in arrows) MidTech Swap Bank US Bank ht! FOREX Market Page 6 of 10 Exchange rates: Ask $/JPY $/Won $/CAD $/GBP $/AU$ $/ZAR Spot Bid 0.0094 0.0006 0.7614 1.3034 0.7225 0.0606 0.0095 0.0008 0.7616 1.3038 0.7226 0.0607 Current borrowing interest rates on loans: Fixed Libor 0.130% USA Japan South Korea Canada UK Australia South Africa 0.640% 0.525% 1.164% 0.666% 0.577% 0.612% 5.045% 0.015% 0.6549 0.156% 0.067% 0.102% 4.535% NI BANK CURRENCY SWAP INTEREST RATE QUOTES AGAINST U.S. LIBOR RATE $ Yen Won CAD$ GBP AUS ZAR Years Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% Bid% Ask% 1 0.6300.650 0.515 0.535 1.154 1.174 0.656 0.676 0.567 0.587 0.602 0.6225.035 5.055 0.640 0.660 0.525 0.545 1.164 | 1.184 0.666 0.686 0.577 0.597 0.612 0.632 5.045 5.065 30.650 0.670 0.535 0.555 1.174 1.1940.676 0.696 0.587 0.607 0.622 0.642 5.055 5.075 40.660 0.680 0.545 0.565 1.184 1.204 0.686 0.706 0.597 0.617 0.632 0.652 5.065 5.085 5 0.670 0.690 0.555 0.575 1.194 1.214 0.696 0.716 0.607 0.627 0.642 0.662 5.075 5.095 60.680 0.7000.565 0.585 1.204 1.224 0.706 0.726 0.617 0.637 0.652 0.672 5.085 5.105 70.690 0.7100.575 0.595 1.214 1.234 0.716 0.736 0.627 0.647 0.662 0.682 5.095 5.115 8 0.700 0.720 0.585 0.605 1.224 1.244 0.726 0.746 0.637 0.657 0.672 0.692 5.105 5.125 9 0.710 0.730 0.595 0.615 1.234 1.254 0.736 0.756 0.647 0.667 0.682 0.702 5.115 5.135 100.720 0.740 0.605 0.625 1.244 1.264 0.746 0.766 0.657 0.677 0.692 0.712 5.125 5.145 Other summarised information: United Kingdom subsidiary profits generated quarterly: Estimated 30% share profit in South African plant per month: Capital cost of new electric tool plant in South Africa: Capital cost of expanding existing plant in South Africa to electronic component manufacturing and electric tool manufacturing: 500,000 R2,000,000 R150,000,000 R120,000,000 Question 3: (16 marks) The CEO considers the investment in South Africa by entering into an agreement with Electo Co to expand the existing plant by investing ZAR120,000,000. The CEO believes Midtech should borrow the funds in USS at a fixed rate from a bank in the U.S.A. and convert it into ZAR for investment. For this purpose a 5 year (60 month) currency swap transaction will be required. He wants to be provided with a 5 year currency swap proposal. Also depict the swap graphically for the CEO to see how the swap will work Workings: Show the figures that should Marks be applied in this column ZAR to be invested: 1 mark Spot exchange rate to purchase ZAR for investment: 1 mark Borrowing rate in U.S.A. to be used: 1 mark Value in US$ to be borrowed: 1 mark Swap transaction: Marks In which currency is the swap payment? e.g. in USS or ZAR State whether the payment is Fixed or Libor State the percentage (%) of the payment MidTech pays swap bank MidTech pays swap bank MidTech receives from swap bank MidTech receives from swap bank 1 mark 1 mark 1 mark 1 mark Complete the diagram below to show the swap transaction graphically by inserting the correct interest rate or currency values in all the arrows below: 8 marks (1 mark for each correct insertion in arrows) MidTech Swap Bank US Bank ht! FOREX Market Page 6 of 10

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