You have been provided with the following information on a fixed-fixed USD-GBP currency swap, the spot exchange rate between USD and GBP, and the USD and GBP yield curves:

1. Five-year swap 5.5 per cent fixed coupon USD for 6.125 per cent fixed coupon GBP
2. Notional principal of USD 15,000,000
3. Spot exchange rate GBP 1 = USD 1.35
4. Current discount yield curves USD 2.35 per cent flat, GBP 2.00 per cent flat.

(a) You wish to value the swap. What assumptions must you make to use the information that has been provided to you?

(b) What is the time zero value of the swap to the GBP receiver?

(c) What settlement payment will ensure fair value against the swap to both parties, and to whom must it be paid?

(d) What is the implied exchange rate between USD and GBP for the interest payments made under the swap? Should you expect this rate to match the current value of the exchange rate? Explain.

 

 

Posted Date: 3/28/2013 5:24:07 AM | Location : United States

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