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
Working capital cycle for a trade Inventories days (time inventories are held before being sold)   +   Trade receivables days (how long the credit

Adding a Riskless Cash Fund: Assume now that a riskless cash fund P0 is also available to invest in. The risk free rate is 0.05 for both lending & borrowing. Obtain Pythagoras's ne

Create a new µσ-plane graph displaying the risk-less cash fund, tangency portfolio, Pythagoras's new optimal portfolio and the Capital Market Line relative to the risky efficient f

Problem : PART A (a) Analyse Keynes's model of liquidity preference. (b) Analyse the instruments central banks use to control the supply of money in the economy. PA

Q. What is Over-capitalisation? Over-capitalisation This is the opposite of over trading. It means a company has a large volume of inventories, cash balances and trade re

During and economic downturn, we can acquire another company by purchasing its stock for $6 billion. The company is earning $700 million a year, which is available for dividends, a

Below is information about the spot and forward rates for three currencies against the US dollar (USD): (a) Critically discuss the interest rate parity and covered interest

An entity's working capital financing policy is to finance working capital using short-termfinancing to fund all the fluctuating current assets as well as some of the permanent par

#Identify at least five key pieces of data you would use in microeconomic decision making on the Web site.

I need to conduct bivariate tests using two regime threshold cointegration for nonlinear relations. I have the code but it will nee some modification. Is there someone can help?