Synthesis

It might be worthwhile to :

Originally borrow in Floating USDollars within the next 4-5 weeks (as the Dollar peaks against the Rupee between 36.75-37.50). Do a Floating to Fixed Interest Rate Swap before end '97

Then, by end of 1997, enter into a Currency Swap into Fixed Japanese Yen at an exchange rate near 117

This move would be aimed at taking advantage of a Yen depreciating in 1998, after it has gained for the final time against the Dollar in 1997

The Deutschemark may best be avoided, both because it may gain against the USDollar and because there would be a greater interest benefit in Yen. Also, there are good chances that the Yen will depreciate against the Mark in the long run.

Questions unanswered

• What happens to a Mark denominated loan when the Mark ceases to be on 1st Jan, 1999?
• What are the likely movements in real interest rates (and hence in the real yield gaps) between USD-DEM-JPY over the next 24 months?

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We acknowledge with thanks valuable inputs received from Mr. Malay Ghatak, Citibank NA, Calcutta, regarding Euro Bond markets.