Case study
Ecobank's Cross-Currency Loan Funding
An exercise in the international money market

Prof. Ian Giddy, New York University

Ecobank's funding choices

Ecobank is based in West Africa. The bank has just made a commitment to provide a 6-month loan to a company in Benin, to purchase equipment for installing micro-hydroelectric systems in Benin, Togo and Burkina Faso. The equipment is to be paid for in pounds sterling, and the amount of the loan is GBP3 million. The rate is the 3-month Eurosterling offer rate plus a spread of 2.50%. Ecobank London is considering funding the loan in Euros or US dollars instead of pounds. If the loan is funded in Euros or dollars, it would have to be hedged in the forward exchange market.

Assignment

Using the tables of rates below, calculate the cheapest way of funding the loan. Explain carefully how it would be done.

International Money Market Rates


April 30
Short
term
7 days
notice
One
month
Three
months
Six
months
One
year

Euro
2 19/32 to
2 17/32
2 19/32 to
2 17/32
2 19/32 to
2 17/32
2 17/32 to
2 15/32
2 7/16 to
2 13/32
2 7/16 to
2 11/32

Sterling
3 5/8 to
3 17/32
3 9/16 to
3 13/32
3 5/8 to
3 17/32
3 19/32 to
3 1/2
3 17/32 to
3 7/16
3 17/32 to
3 7/16

Swiss Franc
9/32 to
1/32
9/32 to
5/32
9/32 to
3/16
9/32 to
7/32
3/8 to
9/32
9/16 to
15/32

Canadian Dollar
3 11/32 to
3 7/32
3 5/16 to
3 7/32
3 11/32 to
3 9/32
3 3/8 to
3 5/16
3 7/16 to
3 11/32
3 19/32 to
3 1/2

US Dollar
1 15/32 to
1 11/32
1 11/32 to
1 1/4
1 5/16 to
1 7/32
1 5/16 to
1 7/32
1 9/32 to
1 3/16
1 11/32 to
1 1/4

Japanese Yen
1/32 to
- 1/32
1/32 to
- 1/32
1/32 to
- 1/32
1/32 to
- 1/32
3/32 to
1/32
1/8 to
1/32

Singapore $
9/16 to
7/16
1/2 to
1/4
9/16 to
5/16
11/16 to
7/16
11/16 to
7/16
3/4 to
1/2


Currency Rates, Spot and Forward
s
World Time: Lon 16:21 | NY 21:21 | Sydney 06:21

Spot Rate GBP/USD = 1.6022/1.6039
Forward Points
Outright Forward Rates

Period
Bid
Ask
Period
Bid
Ask
1 Month -0.003390 -0.003300 1 Month 1.598830 1.600590
2 Month -0.006180 -0.006000 2 Month 1.596040 1.597900
3 Month -0.009280 -0.008990 3 Month 1.592950 1.594900
6 Month -0.018250 -0.017690 6 Month 1.583970 1.586210
12 Month -0.034510 -0.033770 12 Month 1.567710 1.570120
2 Year -0.061550 -0.058650 2 Year 1.540670 1.545240




World Time: Lon 16:23 | NY 21:23 | Sydney 06:23

Spot Rate GBP/EUR = 1.4266/1.4282
Forward Points
Outright Forward Rates

Period
Bid
Ask
Period
Bid
Ask
1 Month -0.000510 -0.001060 1 Month 1.426120 1.427130
2 Month -0.002800 -0.002000 2 Month 1.423830 1.426190
3 Month -0.004200 -0.003320 3 Month 1.422430 1.424870
6 Month -0.008380 -0.007250 6 Month 1.418250 1.420950
12 Month -0.016480 -0.015190 12 Month 1.410160 1.413000
2 Year 0.008170 0.012360 2 Year 1.434810 1.440550



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