Question

Tsar Alexander III's Russian Gold Loan and the Implied Exchange Rate At the beginning ofthe 20th century, the Russian government was the largest borrower in the world. Russian government bonds were traded in all major financial centers, and in different currencies. In 1913 foreign investors held 49.7% ofRussian govemment debt a. Calculate Annual and Quarterly Coupon rates for each issued Bond in six different currencies. b. Populate the chart which shows the fixed rate ofexchange implied by the coupon for the six different currencies c. What is the value ofthe total bond as originally issued in Argentine Peso, Canadian Dollar, Indian Rupee, Swiss Franc, and Malaysian Ringgit? a. The value of the bond is its Par Value, as stated on the bond, assuming that the rates of interest by currency were current at the time ofits issuance. From that we can also calculate the value of each coupon (interest) payment by currency on both an annual and quarterly basis. Quarterly Coupon (coupon/4) Annual Annual Coupon (3% of Par) Currency Russian gold roubles Argentine Peso Par Value Coupon Rate 136.47 3.000% 516.90 3.000% Canadian Dollar 28.62 3.000% Indian Rupee Swiss Franc 416.24 3.000% 254.11 3.000% 112.22 Malaysian Ringgit 3.000% b. The chart or matrix of implied exchange rates is found by dividing the par values by currency. For example, Argentine Peso/Russian roubles is found by dividing RBL 136.474 by ARS 516.901, giving an implied exchange rate of RBL 0.264/ARS. Russian Gold Malaysian Ringgit (per Ringgit) Argentine Canadian Indian Swiss Roubles Peso Dollar Rupee Franc Currency units Russian gold roubles Argentine Peso (per Peso (per Dollar) (per Rupee) (per Franc) (per Rouble) Canadian Dollar Indian Rupce Swiss Franc Malaysian Ringgit

Answer 1

Part (a)

Please see the table below. Please be guided by the second row to understand the mathematics.

Currency	Par Value	Annual Coupon rate	Annual Coupon	Quarterly Coupon
	A	B	C = A x B	D = C/4
Russian Gold Rubles	136.47	3.000%	4.09	1.02
Argentine Peso	516.90	3.000%	15.51	3.88
Canadian Dollar	28.62	3.000%	0.86	0.21
Indian Rupee	416.24	3.000%	12.49	3.12
Swiss Franc	254.11	3.000%	7.62	1.91
Malaysian Ringgit	112.22	3.000%	3.37	0.84

Part (b)

Currency	Russian Gold Rubles	Argentine Peso	Canadian Dollar	Indian Rupee	Swiss Franc	Malaysian Ringgit
Russian Gold Rubles	1.0000	0.2640	4.7683	0.3279	0.5371	1.2161
Argentine Peso	3.7876	1.0000	18.0608	1.2418	2.0342	4.6061
Canadian Dollar	0.2097	0.0554	1.0000	0.0688	0.1126	0.2550
Indian Rupee	3.0500	0.8053	14.5437	1.0000	1.6380	3.7091
Swiss Franc	1.8620	0.4916	8.8788	0.6105	1.0000	2.2644
Malaysian Ringgit	0.8223	0.2171	3.9210	0.2696	0.4416	1.0000

Part (c)

Currency	Currency Per rouble	Total bond issuance by Currency
	A	B = A x 182,053,703
Russian Gold Rubles	1.0000	182,053,703
Argentine Peso	3.7876	689,554,914
Canadian Dollar	0.2097	38,179,651
Indian Rupee	3.0500	555,272,465
Swiss Franc	1.8620	338,987,810
Malaysian Ringgit	0.8223	149,703,719