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  • FE - Lecture 6

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    anayakhan
    12 vizualizări8 pagini
    The document discusses applications of the contractual equation in financial engineering, including: 1) Using synthetic instruments to avoid withholding taxes on bonds 2) Creating synthetic loans to circumvent capital controls 3) Employing the contractual equation across currencies since it cannot be directly applied

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    FE_Lecture 6

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    The document discusses applications of the contractual equation in financial engineering, including: 1) Using synthetic instruments to avoid withholding taxes on bonds 2) Creating synthetic loans to circumvent capital controls 3) Employing the contractual equation across currencies since it cannot be directly applied

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    © All Rights Reserved
    Descărcați ca PDF, TXT sau citiți online pe Scribd
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    12 vizualizări8 pagini

    FE - Lecture 6

    Încărcat de

    anayakhan
    The document discusses applications of the contractual equation in financial engineering, including: 1) Using synthetic instruments to avoid withholding taxes on bonds 2) Creating synthetic loans to circumvent capital controls 3) Employing the contractual equation across currencies since it cannot be directly applied

    Drepturi de autor:

    © All Rights Reserved
    Descărcați ca PDF, TXT sau citiți online pe Scribd
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    din 8

    7/6/2020

    LECTURE# 06
    Financial Engineering
    MT-456

    Applications of Contractual Equation

    ■ A Withholding Tax Problem


    ■ Creating Synthetic Loans
    ■ Capital Controls
    ■ Cross Currencies

    1
    7/6/2020

    Applications of Contractual Equation


    A Withholding Tax Problem bond is tbill so zero default and no coupon

    t= time at which bond is being discussed


    price today at time t
    T= future ki price

    profit = T - t = 100 - 92 = 8 future price T with interest = face value


    tax = 20% of 8
    net = 8 - 20% 0f 8 = 6.4
    profit p tax laggya ussay bachne k lye we wont purchase this bond
    directly and syntethic use kar k peche k steps sa we can avoid tax
    3

    price at time t

    price at time T

    2
    7/6/2020

    Applications of Contractual Equation


    A Withholding Tax Problem

    3
    7/6/2020

    Applications of Contractual Equation


    Creating Synthetic Loans

    4
    7/6/2020

    Applications of Contractual Equation


    Capital Controls

    10

    10

    5
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    Applications of Contractual Equation


    Capital Controls

    11

    11

    12

    12

    6
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    Applications of Contractual Equation


    Cross Currency contractual eq direct use nhi hoti

    13

    13

    Applications of Contractual Equation


    Cross Currency

    14

    14

    7
    7/6/2020

    Applications of Contractual Equation


    Cross Currency

    15

    15

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