Treasury & Funds Management Interest Rate & Foreign Exchange Rates.

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Presentation transcript:

Treasury & Funds Management Interest Rate & Foreign Exchange Rates

Rates in Money Market – Interest Rate The price paid for borrowing money for a period of time, usually expressed as a percentage of principal per year.  Bid / Offer  Per Annum Basis or Flat Rates  Simple or Compound Interest  Fixed & Floating rates  KIBOR  Collar  Discount Basis & Balloon Payment  Real & Nominal Interest

Effective Interest Rate Amount of Time Deposit: 8% per annum compounded quarterly Total Interest Earned Rs.8.24 Effective Interest Rate: 8.24% Interest Collected (in Rs.) Interest reinvested at 8% Earnings on reinvested income (in Rs.) After 3 Months2.00For 9 Months0.12 After 6 Months2.00For 6 Months.08 After 9 Months2.00For 3 Months.04 After 12 Months

Problems  An manufacturer needs to borrow money for six months. Bank A quotes 1.5% per month. Bank B quotes 17% per annum. Both banks will collect the amount of interest due at the end of each calendar quarter and at the end of the loan period. Which bank should manufacturer choose?  Bank A offers a loan at 2.5% per month. Bank B offers 32% per annum. Which bank offers lowest rate?  Bank A pays 6% flat for four months on a deposit. Bank B pays 20% per annum. In which bank would you invest?(Interests are payable at the end of each calendar quarter and at the end of the transaction.)

Rates in Foreign Exchange Market  Reciprocal Rates E.g. US$ against PKR in Pakistan = Rs.80.50/$ US$ against PKR in US = $/Rs E.g. French TermsAmerican termsGerman terms FF4.00/$$ ?/FF FF1.75/DMDM ?/FF

Rates in Foreign Exchange Market Cross Rates  Compute GBP in Pakistan terms & in UK terms with the help of the following data: PKR / US$ US$ / GBP PKR ? / GBP GBP ? / PKR

Rates in Foreign Money Market Spread between Rates on Domestic & Eurocurrency Deposits  Cost Special to Domestic Funds  Impact of Exchange Controls  Differences in Political Risk