Interest and Currency Management wir OTC Derivatives

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Interest and currency management with OTC derivatives
For some time now, you have been offering services to corporate clients from various industries. Your client is a porcelain manufacturer that operates several factories for processing and manufacturing porcelain. He mainly produces articles for contemporary table and home decor and is known for his classic (tea) services and modern gift articles.
Accounting is done in EUR at the end of the calendar year (= end of the financial year). The production sites are located in Germany, Slovakia, Switzerland and Poland.
Current loans from the customer:
• EUR 500,000 Working capital credit line (on a roll-over basis, reference interest rate: 3-month Euribor plus 85 basis points) • EUR 1.2 million fixed-rate loan (2.9%), maturing on 01.06.2025; the client has a follow-up financing requirement for another 7 years (again EUR 1.2 million). • CHF 2.44 million loan (01.2020 – 12.2024, semi-annual repayment approx. CHF 305,000)
In your documents you read that the client has achieved strong growth in the past years. His balance sheet ratios are above average and he has been an exceptionally reliable debtor in the past. The client wants to expand its business model this year and enter the “dental porcelain” business segment. For the investment in two new special furnaces (locations: Germany and Slovakia) he needs another Euro Loan in the amount of 625,000 Euros.
He generally expects interest rates to rise in the USD and EUR currency areas – but believes that USD interest rates will rise much sooner than EUR interest rates. For the USD he expects a further appreciation against the EUR, for the CHF he considers a recovery (i.e. depreciation against the EUR) possible and certainly more likely than a further appreciation – but he cannot rule this out. He considers the PLN to be relatively stable, with a slight tendency to depreciate against the EUR).
Tasks:
1) What ideas for interest rate derivatives could you offer the client? Describe your ideas (instruments) and how they work for the client.
2) What ideas on currency derivatives could you offer the client? Describe your ideas (instruments) and how they work for the client.
3) In addition to the advantages and disadvantages (opportunities/risks) of the interest rate and currency strategies you propose, explain the respective best and worst case.

Sample Solution

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understudies. Given the expected worth of such figures propelling scholastic achievement and hence impacting results like maintenance, wearing down, and graduation rates, research is justified as it might give understanding into non-mental techniques that could be of possible benefit to this populace (Lamm, 2000) . Part I: INTRODUCTION TO THE STUDY Introduction The country is encountering a basic lack of medical care suppliers, a deficiency that is supposed to increment in the following five years, similarly as the biggest populace in our country’s set of experiences arrives at the age when expanded clinical consideration is essential (Pike, 2002). Staffing of emergency clinics, centers, and nursing homes is more basic than any time in recent memory as the enormous quantities of ‘people born after WW2’s start to understand the requirement for more continuous clinical mediation and long haul care. Interest in turning into a medical caretaker has disappeared as of late, presumably because of the historical bac

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