Forex Management
99th BPE:: (Q-4.c) Mr Rahman is planning to send CAD, equivalent to BDT
5,00,000 to his son studying in Canada. The current exchange rate for USD/BDT is
117.52 and USD/CAD is 1.36.
(i) Calculate CAD/BDT exchange rate.
(ii) Based on the cross exchange rate in (i) how much CAD will Mr Rahman’s son
receive assuming no other charges?
[6 Marks]
(i) Given,
USD
=117.52, So USD=117.52×BDT ………. (a)
BDT
USD
and =1.36 , So USD=1.36×CAD ………. (b)
CAD
Therefore, from equation (a) & (b)
1.36×CAD=117.52×BDT
CAD 117.52
or, = =86.41
BDT 1.36
CAD
=¿ 86.41 means 1 Canadian Dollar is equal to 86.41 BDT.
BDT
(ii) Amount of CAD will Mr. Rahman’s son receive is= 500000/86.41=5786.36 CAD
98 BPE:: Q-(3.b) In Planning a business trip to Australia you have budgeted EUR
10,000 for expenses. The current exchange rate for EUR/USD is 1.1200 and for
AUD/USD, it is 0.7500. (i) Calculate EUR/AUD cross-exchange rate (up to four
decimal points). (ii) Using the cross-exchange rate calculated above, determine how
much AUD you will have after exchanging your EUR 10,000 to AUD.
(i) Given,
EUR EUR
=1.1200 , So USD= ………. (a)
USD 1.1200
AUD AUD
and =0.7500, So USD= ………. (b)
USD 0.7500
Therefore, from equation (a) & (b)
EUR AUD EUR 1.1200
= , So, = =1.14933
1.1200 0.7500 AUD 0.7500
(ii) Now that we have the EUR/AUD cross exchange rate, we can convert EUR
10,000 to AUD.
EUR
Amount in AUD= Amount in EUR× = 10000×1.14933=14933 AUD
AUD
98 BPE::(Q-3.c) Expo-International Co. exports its products to multiple countries
and earns revenues in various currencies. In recent months, there has been
significant volatility in foreign exchange rates, particularly with the currency of one
of its major markets, country Alpha. The currency of country Alpha has depreciated
by 20% against Expo International Co. & home currency. As a result, the revenue
generated in country Alpha, when converted to home currency, has substantially
decreased. Is it an example of transaction risk, economic risk, or translation risk?
Explain briefly. [Marks- 8]
97 BPE:: Q-(1.d) Calculate cross rates from the questions given below:
[6 Marks]
USD
(i) =145.72, So USD= JPY×145.72………. (a)
JPY
USD
and =109.50 , So USD= BDT×109.50………. (b)
BDT
Therefore, from equation (a) & (b)
JPY 109.50
JPY×145.72 = BDT×109.50; So, = =0.7514
BDT 145.72
USD
(ii) ) =1.36 , So USD= CAD×1.36………. (a)
CAD
GBP GBP
and =1.27 , So USD= ………. (b)
USD 1.27
Therefore, from equation (a) & (b)
=1.36×CAD, ∴
GBP GBP
=1.36 ×1.27 =1.7272
1.27 CAD
Fixed Income
99 BPE:: (9.d) Suppose you have a bond with face value of BDT 1,000 and an
annual coupon rate of 12%. The bond will be matured after 8 years. If the current
market price of the bond is BDT 850, Calculate the Yield to Maturity (YTM) of the
bond. [Marks- 6]
Given,
Annual coupon rate 12%
Annual coupon = 1000×12%=120
Face value= 1000
Market Price= 850
YTM=?
FV −PV 1000−850 150
C+ 120+ 120+
t 8 8 120+18.75
YTM= = = = = 138.75/925=0.15=15%
FV + PV 1000+850 1850 925
2 2 2
98th BPE::(Q-6.c) Compute the price of a 10% coupon bond with 12 years of
maturity and a par value of Tk. 100,000.00 if the required Yield is 12%.
(6 Marks)
Explanation
This question asks to calculate the price of a bond given its coupon rate, maturity,
par value, and required yield.
The price of a bond is the present value of all future cash flows, which include
coupon payments and the par value at maturity.
[
Bond Price ( Present )=C ×
1−
] 1
(1+i )n
+
M
i (1+i)n
Given,
Face Value/Market Value (M) = 1,00,000 Taka
Coupon Rate= 10%
Required Yield to Maturity, i =12% = 0.12
Maturity Period, n = 12 Years
Price (PV)=?
Coupon Payment , C=1 ,00,000 × 10 %=10,000Tk .
We can write,
Bond Price ( Present )=C ×
1−
[ 1
(1+i )n
+
] M
i (1+i)
n
¿ 10000 ×
1−
[ 1
( 1+0.12 )12
+
]
100000
0.12 (1+0.12)12
−12
1−(1+ 0.12) 1 , 00,000
¿ 10,000 × +
0.12 (1+0.12)12
−12
1−(1+ 0.12) 1 , 00,000
¿ 10,000 × +
0.12 (1+0.12)12
1−0.2567 1 ,00,000
= 10,000 × +
0.12 3.8959
¿ ( 10,000 ×6.1941 ) +25,668
∴ Price of Bond=Tk . 87,609(¿ .)
BOOK Example (P-121):
Compute the price of a 9% coupon bond with 20 years to maturity and a par value of $1,000 if the
required yield is 12%.
Solution:
Explanation
This question asks to calculate the price of a bond given its coupon rate, maturity,
par value, and required yield.
The price of a bond is the present value of all future cash flows, which include
coupon payments and the par value at maturity.
( )
Bond Price Present =C ×
1−
[
1
(1+i )n
+
M ]
i (1+i)
n
Given,
Face Value/Market Value (M) = 1,000 Taka
Coupon Rate= 9%
Required Yield to Maturity, i =12% = 0.12
Maturity Period, n = 20 Years
Price (PV)=?
Coupon Payment , C=1,000 ×9 %=90 Tk .
We can write,
Bond Price ( Present )=C ×
[ 1−
1
]
(1+i )n
+
M
i (1+i)
n
¿ 90 ×
[ 1−
1
]
( 1+0.12 )20
+
1000
0.12 (1+ 0.12)
20
¿ 90 ×
[ 1
1−
( 1.12 )20
+
]
1000
0.12 (1 .12)20
¿ 90 ×
1−
[ 1
9.6463
+
]
1000
0.12 9. 6463
[ 1−0.1037 ]
¿ 90 × +103.6667
0.12
¿ 672.225+103.667
¿ 775.90 (Aproximately)
98 BPE. (Q-7.d) A bank had posted interest revenues of Tk. 80 million and interest
expenses from all of its borrowing of Tk. 50 million. If the bank possesses Tk. 750
million in total earning assets, what is the net interest margin of this bank?
4 Marks
Answer:
Interest Revenue−Interest Expense
Net Interest Margin ( NIM )= × 100
Total Earning Asset
80−50
¿ ×100=4 %
750
96 BPE. (Q-8.c) ABCD bank had posted interest revenues of Tk. 63 million and
interest wasts from all of its borrowing of Tk. 42 million. If the bank possesses Tk.
700 million in total earning assets, what is ABCD Bank’s net interest margin?
5 Marks
Answer:
Interest Revenue−Interest Expense
Net Interest Margin ( NIM )= × 100
Total Earning Asset
63−42
¿ ×100=3 %
700
