Finance EC：Task 6

ID No.: 12418222
Name: Yasha Athalladhira Irawan

(1) Answer the NPV from the ‘Interest Swap’ deal in the reference on ppt.
Assumed principal amount: JPY 10 Billion
Discount Rate: 6%

Pay: 7% at t=1, 4,9% at t=2

Receive: 6% at t=1, and t=2

Pay:
700,000,000 / (1+0.06)1 + 490,000,000 / (1+0.06)2
= 660,377,358 + 436,098,255.6
= 1,096,475,613.6

Receive:
600,000,000 / (1+0.06)1 + 600,000,000 / (1+0.06)2
= 566,037,735.8 + 533,997,864
= 1,100,035,599.8

NPV = 1,100,035,599.8 – 1,096,475,613.6

= 3,559,986.2

(2) Answer the NPV from the ‘Currency Coupon Swap’ deal in the reference.
USD Market Interest: 10% p.a.
JPY Market Interest: 6% p.a.
Assumed Principal Amount: USD 100 Million (JPY 14,000 Million)
Swap Period (Tenor): 2 Years
Exchange Rate (USD 1 = JPY 140.00)
USD Market Interest: 10%
JPY Market Interest: 6%

Pay: 6.3% in USD at the end of each year

Receive: 6% in JPY at the end of each year

Pay:
6,300,000 / (1+0.1)1+ 6,300,000 / (1+0.1)2
= 5,727,272.7 + 5,206,611.6
 = 10,933,884.3 (USD)

Receive:
840,000,000 / (1+0.06)1 + 840,000,000 / (1+0.06)2
= 792,452,830.2 + 747,597,009.6
= 1,540,049,839.8 (JPY)
= 11,000,356 (USD)

NPV = 11,000,356 - 10,933,884.3

= 66,471.7 (USD)

(3) Explain ‘working capital’.

Working capital, which is common as net working capital, defined as the difference
between a company’s current assets, such as cash, accounts receivable, inventories of raw materials
and finished goods, and its current liabilities, such as accounts payable. Net operating working capital
is a measure of a company's liquidity and refers to the difference between operating current assets and
operating current liabilities. In some cases, these calculations are the same and are borrowed from
company cash plus accounts receivable plus inventories, less accounts payable and less accrued
expenses.

Working capital is a measure of a company's liquidity, operational efficiency and its short-

term financial conditions. If a company has substantial positive working capital, then it should have
the potential to invest and grow. If a company's current assets do not outpace its current liabilities,
then it may have problems in growing or paying back creditors, or even go bankrupt.