G Formulas

Question 1

Increase in value?

Answer 1

Buy back - original value

Question 2

Annualising for 50 days

Answer 2

(1 + (Increase in value / original value)) ^ (365/50) -1

Question 3

Borrowing rate for 3 months?

Answer 3

(1 + annual borrow) ^ (3/12) -1

Question 4

Amount to borrow

Answer 4

Receipt from subsidiary / borrowing rate

Question 5

Amount to deposit

Answer 5

Amount to borrow / closing spot rate

Question 6

Annual interest paid?

Answer 6

(Amount borrowed * (Current rate % + borrowing rate %)) / 100

Question 7

Annual interest received?

Answer 7

(Amount deposited * (Current rate % + deposit rate %)) / 100

Question 8

Relative PPP?

Answer 8

Today’s spot exchange rate after one year * ((1 + variable currency inflation rate) / (1 + base currency inflation rate))

Question 9

Interest rate parity?

Answer 9

Spot exchange rate * ((1 + variable currency interest rate) / (1 + base currency interest rate))

Question 10

Fisher effect?

Answer 10

(1 + nominal interest rate) = (1 + real rate)(1 + inflation rate)

Question 11

What is the international fisher effect calculation the same as?

Answer 11

Interest rate parity

Question 12

Forward rate?

Answer 12

Income/closing rate on forward

Question 13

Nero Co’s cash flow forecast shows that it expects to borrow $2m from Goodfellow’s Bank in four months for three months. The company is concerned that interest rates will have risen by the time the loan is taken out. The interest rate is 5%, and Helpy Bank offers this on the required FRA.

What FRA is needed?

Answer 13

A 4-7 FRA at 5%