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
Q. What are Trade receivable days? Year-end trade receivables/Credit sales (or turnover)] * 365 days This is average length of time taken by customers to pay. A long average

Consider a recent merger between two major corporations. Describe the terms of the merger (cash or stock, premium, changes in management / directors, etc.). Explain the motivation

Pythagoras Jones has just inherited $1,000,000 and wishes to invest this sum in the ?ve funds given below. Fund     Name                                Code               Return

Q. Calculate DR's quick ratio? DR has the following balances under current assets and current liabilities: Current assets $ Current liabilities

PASE plc is a UK-based international energy company, which currently operates wholly-owned subsidiaries in Europe and North America. PASE plc's strategy is to generate future growt

Question 1: (a) Describe clearly the main theories of interest rate determination. (b) Critically assess the relationship between interest rate and Money supply. Questio

Question The variance of Stock A is .004, the variance of the market is .007 and the covariance between the two is .0026. What is the correlation coefficient?

In May 2003, Gencorp acquired Sequa Corp.'s propulsion subsidiary ARC for $133million in cash and $11 million in transactions costs. Table below lists selected information about

Q. Explain Working capital ratios? Ratios are a way of comparing financial values and quantities to improve our understanding. In particular they are used to assess the perform

What do you notice about the alphas and betas calculated using the various methods? Using the alpha and beta you calculated for stock 4 along with the average excess return on the