Treasury, Foreign Exchange and Financialization Essay

Treasury, Foreign Exchange and Financialization - Essay Example The table below which is labeled – Table 1 shows the principal repayments schedule for the $200mn facility provided by Toronto Dominion Bank (TD). These were used as a basis for calculating the interest payments in the appendix. ... This has resulted in a difference of $2.4m in overpayment. These repayments were used as a basis in calculating the interest payments in the appendix. The table in the appendix shows the most likely scenario, a high interest scenario and a low interest scenario for CRP as a basis for deciding which of the three hedging strategies is most favorable. The interest payments on the swap option were calculated semi-annually in keeping with the requirements of that option. The interest rates used to calculate the quarterly interest payments were adjusted to reflect the effects on the interest paid interest on the loan by the corresponding hedging strategy. Therefore, the information does not reflect whether CRP or the other party gained from the interest rate swap, interest rate cap or the interest rate collar hedging strategies. The aim of the schedule is to determine which hedging strategy provided the best option in terms of being the least expensive for CRP. The table in the appendix sh ows the interest payments on the $200mn loan under the three hedging strategies and for each scenario. Most likely scenario Table 2 indicates that under the most likely scenario the interest rate swap option provides the best hedging alternative with a required interest payment of $53.7mn and an average interest rate of 11.31% for the three year period (interest remaining fixed throughout the period). This compares favorably with a required interest payment of $59mn and an average interest rate of 11.65% on the interest rate cap option. The interest payment required on the interest rate collar option is $59.6mn with an average interest rate of 11.77%. The loan agreement indicates that the interest rate charged on the hedging instrument should not exceed