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SOLUTION II

Answer 1 A. BALANCE SHEET OF CENTRAL BANK (CB) Assets CU FA 22 CUmb Cup Dmb 25 70 70 145 Liabilities Unit \$ Billion

Bcb Lmb

51 72 145

B Assets CUmb Dmb Bmb Lg Lp

Unit \$ Billion BALANCE SHEET OF MONETARY BANK (MB) Liabilities 35 80 60 55 60 290 DD SD Lmb FLmb 90 90 55 55 290

Answer 2. 1. Borrow 1 000 000 USD at rate 9% for one year 1 000 000 x ( 1+ 0,09) = 1 090 000 USD 2. convert 1 000 000 USD to 1 700 000 SGD - Spot rate(S): 1 USD = 1.7 SGD (1 090 000/1+0.9) x ( 1.7) = 1 700 000 SGD 3. Invest 1.7 million SGD in Singapore one year security yielding 10% per annum (1 090 000/1+0.09) x ( 1.7) x ( 1.1) = 1 870 000 SGD 4. Sell SGD for USD Forward rate (F) : 1 USD = 1.667 SGD ( 1 090 000/1+ 0.09) x ( 1.7 x 1.1/1.667)= 1 121 776 USD 5. Earning after tax (EAT) ( 1 121 776 SGD 1 090 000 USD) x ( 1 0.32) = 31 776 USD x 0.68 = 21 607,68 USD

Answer 3. By applying The formula: DR = (100 buying price/100) x (360/ number of days to maturity) DR is Calculated DR = (100-99/100) x ( 360/180) = 0.1 x 2 = 0.2 = 20%

Answer 4. NPV = t1 + t2 + t3 - I0 By applying The formula: Net Present value = ( Expected Cash Flow year 1/ (1 + YTM)1 + Expected Cash Flow year 1/ (1 + YTM)2 + Expected Cash Flow year 2/ ( 1 + YTM)n + selling price n / ( 1 + YTM)n So Yield at Maturity (YTM) is Calculated \$ 195 = \$ 110/ (1 + YTM)1 + \$ 110/ (1 + YTM)2 + \$ 110/ (1 + YTM)3 + \$ 200/ (1 + YTM)3 => YTM = 12,1% Answer 5. a.Provision for bad debts Short term loan : \$ 120 million x 1% Medium term loan : \$ 40 million x 2% Long term loan : \$ 40 million x 5% Total provision for bad debts of the MB is \$ 4 million b. Amount for Reserve requirement by CB \$ 195 million x 0.1 c.Net Asset ( Equity) +Assets equal 200 million USD DUR = 2.7; i = 0.15-0.10 =0.05; i =0.10 Value of the assets decreases as %; P = -2.7 x 0.05/1 + 0.1 = -0.123 => -12.3% + Liabilities equal 195 million USD = \$ 19.5 million

\$1.2 million \$0.8 million \$2.0 million

DUR = 1.03; i = 0.15-0,10 =0.05; i =0.10 Value of the liabilities decreases as %; P = -1.03 x 0.05/1 + 0.1 = -0.047 => -4.7% + Value of the net assets ( equity) decreases as 200 million USD x (-12.3%) 195millionUSD x ( -4.7%) = - 15.66 million USD

SOLUTION I
Answer 1 A. BALANCE SHEET OF CENTRAL BANK (CB) Assets CU FA 32 CUmb Cup Dmb 35 80 70 185 Liabilities Unit \$ Billion

Bcb Lmb

61 82 185

B Assets CUmb Dmb Bmb Lg Lp

Unit \$ Billion BALANCE SHEET OF MONETARY BANK (MB) Liabilities 25 70 50 45 50 240 DD SD Lmb FLmb 70 70 50 50 240

Answer 2. 1. Borrow 1 000 000 EUR at rate 6% for one year 1 000 000 x ( 1+ 0,06) = 1 060 000 EUR 2. convert 1 000 000 EUR to 1 400 000 USD - Spot rate(S): 1 EUR = 1.4 USD (1 060 000/1+0.6) x ( 1,4) = 1 400 000 USD 3. Invest 1.4 million USD in US one year security yielding 8% per annum

(1 060 000/1+0.06) x ( 1.4) x ( 1.08) = 1 512 000 USD 4. Sell USD for EUR Forward rate (F) : 1 EUR = 1.334 USD ( 1 060 000/1+ 0.06) x ( 1.4 x 1.08/1.334)= 1 133 433.28 EUR 5. Earning after tax (EAT) ( 1 133 433.28 EUR 1 060 000 EUR) x ( 1 0.30) = 73 433.28 x 0.70 = 51 403,30EUR Answer 3. By applying The formula: DR = (100 buying price/100) x (360/ number of days to maturity) DR is Calculated DR = (1000-990/100) x ( 360/180) = 0.1 x 2 = 0.2 = 20%

Answer 4. NPV = t1 + t2 + t3 - I0 By applying The formula: Net Present value = ( Expected Cash Flow year 1/ (1 + YTM)1 + Expected Cash Flow year 1/ (1 + YTM)2 + Expected Cash Flow year 2/ ( 1 + YTM)n + selling price n / ( 1 + YTM)n So Yield at Maturity (YTM) is Calculated \$ 1950 = \$ 1100/ (1 + YTM)1 + \$ 1100/ (1 + YTM)2 + \$ 1100/ (1 + YTM)3 + \$ 2000/ (1 + YTM)3 => YTM = 12,1%

Answer 5. a.Provision for bad debts Short term loan : \$ 60 million x 1% Medium term loan : \$ 20 million x 2% Long term loan : \$ 20 million x 5%

\$.6 million \$.4 million \$1.0 million

Total provision for bad debts of the MB is \$ 2 million b. Amount for Reserve requirement by CB \$ 95 million x 0.1 c.Net Asset ( Equity) +Assets equal 100 million USD = \$ 9.5 million

DUR = 2.7; i = 0.15-0.10 =0.05; i =0.10 Value of the assets decreases as %; P = -2.7 x 0.05/1 + 0.1 = -0.123 => -12.3% + Liabilities equal 95 million USD DUR = 1.03; i = 0.15-0.10 =0.05; i =0.10 Value of the liabilities decreases as %; P = -1.03 x 0.05/1 + 0.1 = -0.047 => -4.7% + Value of the net assets ( equity) decreases as 100 million USD x (-12.3%) 95millionUSD x ( -4.7%) = - 7.83 million USD