Determine the time zero value of the swap, Financial Econometrics

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

  •     Five-yearswap5.5percentfixedcouponUSDfor6.125percentfixedcouponGBP
  •     NotionalprincipalofUSD15,000,000
  •     SpotexchangerateGBP1=USD1.35
  •     CurrentdiscountyieldcurvesUSD2.35percentflat,GBP2.00percentflat.


(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?

Posted Date: 3/22/2013 6:23:46 AM | Location : United States







Related Discussions:- Determine the time zero value of the swap, Assignment Help, Ask Question on Determine the time zero value of the swap, Get Answer, Expert's Help, Determine the time zero value of the swap Discussions

Write discussion on Determine the time zero value of the swap
Your posts are moderated
Related Questions
The  expected  return  and  risk  involved  in  making  an  investment  are important  factors  considered  by  investors.  The  expected  return  of  a business can be influenced

Q. What do you meant by Overtrading? When a company is trading large volumes of sales very quickly, it may also be generating large amounts of credit sales and consequently lar

Question 1: (a) Analyse the impact of boom and bust in the economy on business activities? (b) What measures can policy makers use to promote economic expansion? Ques

Acceptance Testing is a functional trial done on a product previous to put on the market or distributed to the purchaser. The acceptance testing procedure is intended to replicate

To buy a retirement home, you will need $525,000 in 18 years. If funds can be invested at an effective return of 6 percent a year, how much must you invest today to have the desire

Q. Explain Moderate working capital policy? All the non-current assets and permanent asset are financed by long-term finance. The temporary fluctuating assets financed by short

Question If the economy booms, RTF, Inc. stock is expected to return 10%. If the economy goes into a recessionary period, then RTF is expected to only return 4%. The probabilit

Q. What do you mean by Acquistions - takeovers? Acquistions / takeovers: an essential feature of the merger through the absorption as well as consideration in the combination t

apple is having too much cash, discuss six reasons of why shareholders are so worried

Prices of Calls and Puts Options the shares of Marks & Spencer a) Explain carefully why the November calls are trading at higher prices than the September calls. b) Draw a diag