Chris Bergeron
Mark Marra
B.F. Goodrich-Rabobank Case
1.In order to make this an attractive deal for Rabobank, they would need to receive more money than they pay out. We know that they have a fixed receipt each year from Morgan bank of $ 5.5 million for 8 years. Ignore the time value of money on this, it means that Rabobank would then need to pay out less than (5.5/2 = 2.75) $2.75 million semiannually. We know the equation for the amount Rabobank needs to pay out semiannually is: (50 million)(LIBOR - X)(½). In order for this equation to equal the $ 2.75 million they are due to receive, we solve for this:
(50 million)(LIBOR - X)(½) = 2.75 million
(50 million)(LIBOR - X) = 5.5 million
(LIBOR - X) = .11
This then tells us that Rabobank will want (LIBOR - X) to be equal to less than .11, which is the fixed annual coupon they are receiving. Therefore .11 > (LIBOR - X) is the rate Rabobank is looking for. …show more content…
Not only did this trade open the door for this market, it also enabled local banks to branch out and use the international market to their advantage. In this case we looked at how Morgan bank made money just by being the middleman. There was little risk for Morgan bank, yet they received an initial fee and yearly fee from B.F. Goodrich in the unlikely case either counterparty defaulted. Rabobank also seized this opportunity to finance $50 million of floating rate Eurodollar. …… Not only did did provide an attractive alternative for savings banks, but it also opened up the international market to investors and other companies looking to follow in the footsteps of B.F. Goodrich. As mentioned in the case, both parties came out of this agreement thinking they had gotten the better end of the deal. We believe the case could be made that all three parties came out getting what they wanted since Morgan bank got a nice intermediary
Mark Marra
B.F. Goodrich-Rabobank Case
1.In order to make this an attractive deal for Rabobank, they would need to receive more money than they pay out. We know that they have a fixed receipt each year from Morgan bank of $ 5.5 million for 8 years. Ignore the time value of money on this, it means that Rabobank would then need to pay out less than (5.5/2 = 2.75) $2.75 million semiannually. We know the equation for the amount Rabobank needs to pay out semiannually is: (50 million)(LIBOR - X)(½). In order for this equation to equal the $ 2.75 million they are due to receive, we solve for this:
(50 million)(LIBOR - X)(½) = 2.75 million
(50 million)(LIBOR - X) = 5.5 million
(LIBOR - X) = .11
This then tells us that Rabobank will want (LIBOR - X) to be equal to less than .11, which is the fixed annual coupon they are receiving. Therefore .11 > (LIBOR - X) is the rate Rabobank is looking for. …show more content…
Not only did this trade open the door for this market, it also enabled local banks to branch out and use the international market to their advantage. In this case we looked at how Morgan bank made money just by being the middleman. There was little risk for Morgan bank, yet they received an initial fee and yearly fee from B.F. Goodrich in the unlikely case either counterparty defaulted. Rabobank also seized this opportunity to finance $50 million of floating rate Eurodollar. …… Not only did did provide an attractive alternative for savings banks, but it also opened up the international market to investors and other companies looking to follow in the footsteps of B.F. Goodrich. As mentioned in the case, both parties came out of this agreement thinking they had gotten the better end of the deal. We believe the case could be made that all three parties came out getting what they wanted since Morgan bank got a nice intermediary